Topic 25 - Arrears and Debt Management Flashcards
What are the two overarching principles regarding borrowers with payment difficulties?
A lender must treat those in difficulty fairly; and
Must not take advantage of their vulnerable position.
Where a borrower has a payment shortfall, the lender must not attempt to process more than…
…two direct debit requests in any one calendar month.
If the borrower’s bank has refused to pay the direct debit at least once in each of two consecutive months due to insufficient funds, the firm must:
- Consider whether the payment method is suitable for the borrower.
- Make reasonable efforts to contact the borrower to discuss this.
- Not pass on any costs arising from the failed direct debit.
If the borrower is in arrears, the lender must consider whether one of the following actions would be suitable to help resolve the problem:
- Extend the mortgage term
- Change the mortgage type
- Defer payment of interest due
- Adding the shortfall to the capital owing (capitalization)
- Make use of any government forbearance schemes to help borrowers with problems.
MCOB defines capitilisation as ‘material’ if:
It increases the interest payable over the mortgage term by £50 or the monthly repayment amount by £1 or more.
The lender must keep records of its dealing with borrowers in arrears for:
3 years from the date of such dealings.
Under MCOB 13, the lender must write to the borrower within how many days of becoming aware that the account is in arrears?
15 business days.
When writing to the borrower regarding arrears, the letter must contain:
- ‘Problems paying your mortgage’ information sheet from the Single Finance Guidance Body
- A list of payments missed or partly paid. Total of arrears. Total outstanding debt
- Charges resulting from arrears and those that will be incurred if not cleared
What are the procedures before taking possession?
The lender must:
- Provide a letter detailing arrears and charges
- Ensure the borrower is informed of the need to contact the local authority to establish their eligibility for rehousing after the lender takes possession
- Clearly state the possession procedure
Contacting the borrower regarding arrears can take place when?
At a reasonable hour, generally between 8am to 9pm. It must take into account the borrower’s known work patterns and religious observance.
Once a property has been taken into a possession, the lender must take steps to:
- Market it as soon as possible
- Take reasonable care to obtain the best price that may be achieved, though it cannot ‘nurse’ the property
If a lender decides to recover a shortfall, it must notify the borrower of its intention within:
6 years of the sale.
Short-term measures to deal with mortgage arrears…
…take place prior to litigation, usually when the account is between one and three months in arrears.
Medium-term measures to deal with mortgage arrears…
…are introduced once litigation has commenced and may be applicable for cases with up to 12 months’ repayment arrears.
If a plan to pay arrears over a given period is agreed, it should be…
…fully documented for internal records and confirmed to the borrower in writing.
Full or partial suspension of monthly payments is used mainly where:
-The mortgage is on a capital-repayment basis, there is already a reasonable amount of equity in the property and the lender believes that the borrower’s personal and financial circumstances merit it.
It is a short-term measure known as a ‘holiday’
Why can with-profits endowment mortgages not usually have their term extended?
Because they mature on a particular date. Unit-linked endowments and ISAs are more flexible.
What are the disadvantage of surrendering an endowment policy?
The loan will be converted into a capital repayment mortgage. Payments will increase and alternative life cover will need to be arranged.
What is an financially better alternative to surrendering a with-profits policy?
Selling it in the secondary market.
SMI used to be a paid benefit. What is it now?
It is a loan, essentially a second-charge mortgage.
Who is SMI available to?
Those in receipt of UC or means-tested benefits.
SMI covers interest on a mortgage of up to how much?
£200,000. Those in receipt of Pension Credit will receive the loan based on interest on a mortgage of up to £100,000.
The waiting period between making a SMI claim and payments starting is?
39 weeks. Those in receipt of Pension Credit will have benefits paid immediately.
The SMI loan must be repaid when…
…the property is sold or transferred, or the owner dies. If there is insufficient equity in the property to pay the whole loan, the balance will be written off.
Interest charged on the SMI loan is based on what?
An interest rate equal to the forecast gilt rate, which is usually lower than the market interest rate.
What is not covered by SMI?
Endowment premiums and building contents insurance premiums.
Payments from SMI are made direct to who?
The lender.
Claims for SMI may also be accepted for specific loans taken out to cover what?
Essential repairs or improvements, or to buy an ex-partners share in the home on separation.
What is mortgage interest run-on?
It is a condition hat means the benefit will be paid for a further 4 weeks and not stopped immediately, if the claimants has already been claiming continuously for 26 weeks.
What is the 52-week linking rule?
It is a rule that means a borrower who has already served the waiting period for SMI and then ceases to claim payments for up to 52 weeks will not have to serve a further waiting period at the start of the second claim.
Who should be the first contact point for advice?
The borrower should contact the lender as early as possible before problems escalate.
For advice on assistance they can receive, they should contact their local DWP office.
Mortgage rescue schemes operate in one of two ways:
1) An organisation buys the property from the borrower and then rents it back to them.
OR
2) The borrower sells part of the property, leaving them in a shared ownership situation.
Mortgage rescue schemes are offered by who?
Local councils, housing associations and other not-for-profit agencies, as well as mortgage lenders.
An IVA is considered when a borrower has what?
Significant debts that they are struggling to service. This arrangement means some of their debt is written off by their creditors.
