An unprecedented $2.6tn (£2.4tn) in a cash pile of investors’ money could be used to buy mortgage lenders’ back books in advance of the July 2024 phase two Consumer Duty deadline.

Paul Hunt, CEO at Phoebus Software, says that a stagnation in private equity release transactions has led to a record £2.4tn in cash reserves available for buyouts and other investments. As a result, he believes that in the next few months, banks and private equity executives will acquire the closed books of mortgage lenders keen to offload their closed books to avoid the compliance challenges associated with the 31 July 2024 Consumer Duty deadline.

Hunt said: “As of August 2024, lenders with closed products and services must have implemented the necessary changes to their business to comply with phase two of Consumer Duty regulations. The new rules will require a multitude of lenders to completely change their processes and communications with existing borrowers. Some lenders may consider this more trouble than it’s worth.

“It will be particularly challenging for lenders that don’t already have robust and agile servicing capabilities and systems. They will either want to sell on their closed books, outsource to third-party administrators, or migrate fairly sharpish to a Consumer-Duty-friendly mortgage servicing platform.

“While there was a great deal of discussion around the July 2023 Consumer Duty deadline when loan originations came under the microscope, there seems to have been little thought around the impact of Consumer Duty on lenders’ closed books in 2024. For some firms, the second stage of Consumer Duty could be even tougher. Especially for lenders who have been managing large volumes of closed books efficiently and profitably, who are likely to be reluctant to sell them on”.

Hunt added: “The real problem for lenders, is that there is probably a fair amount of foreseeable or actual harm in lenders’ back books. Simply accessing the data so they can put the required actions in place will be a serious challenge for many lenders, especially those with legacy systems.

“By July 2024, lenders need to know which borrowers are on which mortgage products, and how susceptible each borrow is. They need to monitor them on an ongoing basis and communicate appropriately. Some lenders just won’t be able to do what’s required of Consumer Duty come July.”

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