Topic 28- 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.