Managing Mortgage Arrears

How The Mortgage Lenders Manage Arrears

Most mortgage lenders (71%) manage mortgage arrears entirely in-house, and a further 24% use a combination of in-house staff and external staff – this means there is only a very small amount (5%) of mortgage lenders who fully outsource there arrears management functions.

Since the Financial Services Authority provided statutory regulations with managing mortgage arrears only 20% of lenders reported that this meant any significant changes to their mortgage arrears handling. The vast majority (8 in 10) said the regulations has made little or no difference to their arrears management, but in some cases had prompted them to change their notification process. This suggests that most mortgage lenders already met the regulatory standard before it was implemented. In the small number of cases where mortgage lenders did have to make significant changes to their arrears management the changes included better qualified staff, more quality assurance checks on staff, telephone call recording and monitoring, and the introduction of quarterly arrears statements.

Mortgage Arrears Statements And Notifications

The vast majority of mortgage lenders place a high importance on making early contact with their borrows who have fallen in to arrears. Nearly all the lenders, 90% with a market share of 80% aimed to make their first contact after one full or part mortgage payment is missed.

In addition, 81% of lenders, went beyond their statutory requirements by providing information to all their borrows who missed two payments within 15 business days – not just regulated mortgages.

Mortgage Arrears and Formal Litigation

78% of mortgage lenders have formal criteria in place for initiating court action. The criteria had two main elements – Firstly the time element; most lenders had a common time frame for initiating repossession proceedings (typically this was 3 months, but it varied between 2 to 6 months). Secondly was the contact element; if borrowers had not kept in touch with the lender to explain the situation or discuss possible solutions and/or debt counselling was unsuccessful.

Once a repossession proceeding had been started by the lender the likely outcomes do not tend to vary that significantly between the prime and non-prime sectors. Repossession orders where granted in over 90% of the court hearing, with 40% of the orders being for an outright possession order. A small number of cases get adjourned, usually if the borrow has a sale agreed on the property or they can prove they are able to repay the mortgage arrears quickly (i.e by selling another assets)

The repossession figures from the Ministry of Justice show mortgage repossession proceedings in county courts in England are much higher than the estimates from the CML (Council of Mortgage Lenders) A rise of 30% between 2009 and 2010 of actual possessions.

Mortgage Arrears – Act With Caution

Mortgages and secured loans (or second mortgages) are called priority debts – these means you can lose your home if you do not keep up with the repayments. This means that no matter how demanding other lenders or creditors are you should pay your mortgage or secured loans first.

If you have other debts in addition to your mortgage which are also adding to your financial problems it can be tempting to take on a larger mortgage which encompasses all your other debts. This may enable you to pay off or clear your existing debts but it is very risky. It may mean your monthly outgoings increase and you may have to pay additional arrangement fees or higher lending charges. Contact an independent financial advisor for help – but remember most of them are on commission to sell you a mortgage.

Best Wishes, John.

What are the next steps to take?