Topic 28 - Arrears and debt management Flashcards
George has missed two mortgage payments. What is the maximum number of direct debit payments his lender can process in one calendar month?
a)
One.
b)
Two.
c)
Three.
b) two - The lender can only process two direct debit payments in one calendar month.
Which of the following is true of the letter a lender must send to a borrower when it becomes aware the borrower is in arrears with their mortgage payments? The letter must:
a)
be sent within 15 calendar days of the lender becoming aware of the arrears.
b)
contain the total outstanding debt, including charges that may be levied on redemption.
c)
contain a list of payments missed or paid in part.
c) contain a list of payments missed or paid in part. - The letter must be sent within 15 business days of the lender becoming aware, rather than 15 calendar days, and must contain details of all payments missed or partly paid. It must detail the total outstanding debt, not including any charges that may apply on redemption.
Rescheduling in relation to mortgage arrears involves:
the borrower clearing arrears by paying more than the normal monthly payment for an agreed period.
full or partial suspension of the mortgage repayments.
extending the mortgage term.
the borrower clearing arrears by paying more than the normal monthly payment for an agreed period. - Rescheduling is where the borrower clears arrears by paying more than the normal monthly payment for an agreed period, typically up to 12 months, assuming that they can sustain the increased payments.
When a lender has taken a property into possession, it is true to say that the lender:
can delay marketing the property until the market improves.
must obtain the best price possible, bearing in mind the state of the market and the increasing debt.
has up to ten years from sale to notify the borrower of its intention to claim repayment of any shortfall between the sale price and the mortgage.
must obtain the best price possible, bearing in mind the state of the market and the increasing debt. - The lender must market the property as soon as possible after taking possession, and must take reasonable care to obtain the best price that might reasonably be paid, taking into account market conditions and the increasing debt. The lender has six years from the date of the sale to notify the borrower of its intention to reclaim any shortfall.
A lender cannot automatically capitalise a payment shortfall where the impact on the borrower would be material. MCOB defines ‘material’ as an additional amount that increases the contractual monthly repayment by:
a)
£1 or more.
b)
£10 or more.
c)
£50 or more.
a) £1 - MCOB defines capitalisation as ‘material’ if, on its own or taken together with previous automatic capitalisations, it increases the interest payable over the mortgage term by £50 or more or the contractual monthly repayment amount by £1 or more.
For which of the following borrowers facing mortgage payment difficulties would agreeing to allow interest-only payments for a short period be the most realistic option?
Betty, who is eight years into a pension mortgage.
Harry, who is two years into a fixed-rate repayment mortgage.
Jeff, who is 15 years into a variable-rate repayment mortgage.
Jeff, who is 15 years into a variable-rate repayment mortgage. - Making interest-only payments for an agreed period is only helpful to a borrower with a repayment mortgage; it is of no benefit to those already paying interest only. It is most beneficial to those who are well into the term of a repayment mortgage, because in the early years most of each monthly payment consists of interest, so the saving would be minimal.
Money advice centres are authorised to give financial advice as defined by the Financial Conduct Authority. True or false?
False. Charities and money advice centres are not authorised to give financial advice as defined by the FCA.
Dave, aged 57, has an uncrystallised personal pension fund of £80,000, but has built up arrears of £10,000 on his repayment mortgage. He is wondering whether he could take money from his pension fund to pay off the arrears. What would be a potential disadvantage of this approach?
a)
He may have to pay income tax on some of the cash taken out from his pension.
b)
He would have little time to build his pension fund back up.
c)
He cannot use pension money to pay a repayment mortgage.
b) He would have little time to build his pension fund back up. -As Dave is over 55, he can take cash from his pension fund. As the amount of the arrears is less than 25% of his fund value, he could take it all as a tax-free lump sum. However, while this would solve his arrears problem, he would have little time to build his pension fund back up again in time for his retirement.
In Scotland’s mortgage-to-shared-equity scheme, the owner sells up to what percentage of the property to the government?
20%
30%
40%
30% - The owner sells up to 30% of the property to the government and can buy the share back at a later date, or share the proceeds with the government when the property is sold.
Jerry is having problems paying his endowment mortgage and needs advice on how to deal with the debt and whether to cancel his endowment. Which of the following is true?
a)
Citizens Advice can provide him with free general advice on his debt and advise him what to do with his endowment.
b)
StepChange Debt Charity can provide him with free information on his debt and the endowment but is likely to charge a small fee.
c)
He may find a financial adviser who can advise him on both aspects of his problem but they may charge him a fee.
C - Citizens Advice and StepChange can provide free help and advice on debt problems, as can a financial adviser who has chosen to offer such advice. Only a qualified financial adviser can provide advice and recommendations about endowments. A financial adviser is likely to charge for their services.
Lenders are under no obligation to contact borrowers about mortgage arrears. True or false?
False. A lender must contact a borrower within 15 business days of becoming aware of arrears.
For how long must a lender keep a record of its dealings with a borrower who is in arrears?
a)
One year from the date of the dealings
b)
Three years from the date of the dealings.
c)
Five years from the date of the dealings.
d)
Until the end of the mortgage term.
b) Three years from the date of the dealings. -
A lender must keep a record of its dealings with a borrower who is in arrears for three years from the date of the dealings.
Gavin lost his job a few months ago and is now in arrears with his capital repayment mortgage payments. Although he is trying hard, he sees no prospect of finding a job in the foreseeable future. His lender has turned down his request to capitalise his arrears. Why has the lender turned down his request?
a)
Gavin would not be able to afford the higher payments it would create.
b)
The lender is not legally able to grant such a request.
c)
Gavin’s mortgage has not run for long enough for the request to be valid
Gavin would not be able to afford the higher payments it would create. - Capitalising the arrears adds the arrears to the mortgage, thereby increasing the debt and the payments due. As Gavin cannot afford the current payments, he will not be able to afford the higher payments, which will start almost immediately. He may be better asking to pay interest only for an agreed period.
Accepting interest‑only payments is a way of helping repayment mortgage borrowers facing problems making mortgage payments. True or false?
True. Making interest‑only payments will reduce the monthly payment, although it should only be seen as a temporary measure.
When George defaulted on the mortgage on his London flat, the lender took possession of the flat and sold it to pay his outstanding mortgage, but the proceeds did not repay the whole debt. Within what period of time must the lender inform George of its intention to pursue him for the remaining shortfall?
a)
One year from the sale.
b)
Three years from the sale.
c)
Five years from the sale.
d)
Six years from the sale.
Six years from the sale - In England, if a lender decides to recover a shortfall, it must notify the borrower of its intention within six years of sale.
