How Mortgage Lenders Manage Mortgage Arrears
There Are Set Rules Which Mortgage Lenders Must Adhere To When Dealing With Mortgage Arrears
Mortgage lenders often manage mortgage arrears entirely in-house, or use a combination of in-house staff and external staff. There are only a very small amount of mortgage lenders who fully outsource their mortgage arrears management functions.
Since the Financial Services Authority (FSA) provided statutory regulations regarding the managing of mortgage arrears, only 20% of lenders have reported any significant changes to the way they handle mortgage arrears. The remaining majority said the regulations have made little or no difference to their arrears management, suggesting 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, these 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 borrowers who have fallen in to arrears. Nearly all the lenders aim to make their first contact after one full or part mortgage payment has been missed.
In addition, lenders may go beyond their statutory requirements by providing information to all their borrowers who missed two payments within 15 business days.
Mortgage Arrears and Formal Litigation
A high proprotion of mortgage lenders have formal criteria in place for initiating court action against a borrower who has mortgage arrears. The criteria had two main elements:
- Time Element: Most lenders have a common time frame of 3 months for initiating repossession proceedings, although this could vary between 2 to 6 months.
- Contact Element: If borrowers have not kept in touch with their mortgage lender to explain the situation or discuss possible solutions, or if debt counselling was unsuccessful.
Once repossession proceedings have began, the likely outcomes do not tend to vary that significantly between the prime and non-prime sectors. Repossession orders were granted in over 90% of court hearings, 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).
Mortgage Arrears – Act With Caution
Mortgages and secured loans (or second mortgages) are also known as priority debts – this means you can lose your home if you do not keep up with the required repayments. No matter how demanding your other lenders or creditors are, you should always pay your mortgage or secured loans first.
If you have additional debts which are adding to your financial problems, it can be tempting to take on a larger mortgage or secured loan to encompasses all of your other debts. This may enable you to pay off or clear your existing debts, but it can also be very risky. It may mean that your monthly outgoings increase or you may have to pay additional arrangement fees or higher lending charges.