Topic 28- Arrears and Debt Management Flashcards

1
Q

What are the two overarching principles regarding borrowers with payment difficulties?

A

A lender must treat those in difficulty fairly; and

Must not take advantage of their vulnerable position.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Where a borrower has a payment shortfall, the lender must not attempt to process more than…

A

…two direct debit requests in any one calendar month.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

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:

A
  • 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.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

If the borrower is in arrears, the lender must consider whether one of the following actions would be suitable to help resolve the problem:

A
  • 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.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

MCOB defines capitilisation as ‘material’ if:

A

It increases the interest payable over the mortgage term by £50 or the monthly repayment amount by £1 or more.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

The lender must keep records of its dealing with borrowers in arrears for:

A

3 years from the date of such dealings.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Under MCOB 13, the lender must write to the borrower within how many days of becoming aware that the account is in arrears?

A

15 business days.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

When writing to the borrower regarding arrears, the letter must contain:

A
  • ‘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
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the procedures before taking possession?

A

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
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Contacting the borrower regarding arrears can take place when?

A

At a reasonable hour, generally between 8am to 9pm. It must take into account the borrower’s known work patterns and religious observance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Once a property has been taken into a possession, the lender must take steps to:

A
  • Market it as soon as possible

- Take reasonable care to obtain the best price that may be achieved, though it cannot ‘nurse’ the property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

If a lender decides to recover a shortfall, it must notify the borrower of its intention within:

A

6 years of the sale.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Short-term measures to deal with mortgage arrears…

A

…take place prior to litigation, usually when the account is between one and three months in arrears.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Medium-term measures to deal with mortgage arrears…

A

…are introduced once litigation has commenced and may be applicable for cases with up to 12 months’ repayment arrears.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

If a plan to pay arrears over a given period is agreed, it should be…

A

…fully documented for internal records and confirmed to the borrower in writing.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Full or partial suspension of monthly payments is used mainly where:

A

-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’

17
Q

Why can with-profits endowment mortgages not usually have their term extended?

A

Because they mature on a particular date. Unit-linked endowments and ISAs are more flexible.

18
Q

What are the disadvantage of surrendering an endowment policy?

A

The loan will be converted into a capital repayment mortgage. Payments will increase and alternative life cover will need to be arranged.

19
Q

What is an financially better alternative to surrendering a with-profits policy?

A

Selling it in the secondary market.

20
Q

SMI used to be a paid benefit. What is it now?

A

It is a loan, essentially a second-charge mortgage.

21
Q

Who is SMI available to?

A

Those in receipt of UC or means-tested benefits.

22
Q

SMI covers interest on a mortgage of up to how much?

A

£200,000. Those in receipt of Pension Credit will receive the loan based on interest on a mortgage of up to £100,000.

23
Q

The waiting period between making a SMI claim and payments starting is?

A

39 weeks. Those in receipt of Pension Credit will have benefits paid immediately.

24
Q

The SMI loan must be repaid when…

A

…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.

25
Q

Interest charged on the SMI loan is based on what?

A

An interest rate equal to the forecast gilt rate, which is usually lower than the market interest rate.

26
Q

What is not covered by SMI?

A

Endowment premiums and building contents insurance premiums.

27
Q

Payments from SMI are made direct to who?

A

The lender.

28
Q

Claims for SMI may also be accepted for specific loans taken out to cover what?

A

Essential repairs or improvements, or to buy an ex-partners share in the home on separation.

29
Q

What is mortgage interest run-on?

A

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.

30
Q

What is the 52-week linking rule?

A

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.

31
Q

Who should be the first contact point for advice?

A

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.

32
Q

Mortgage rescue schemes operate in one of two ways:

A

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.

33
Q

Mortgage rescue schemes are offered by who?

A

Local councils, housing associations and other not-for-profit agencies, as well as mortgage lenders.

34
Q

An IVA is considered when a borrower has what?

A

Significant debts that they are struggling to service. This arrangement means some of their debt is written off by their creditors.