Mortgage arrears: follow up - Treasury Contents


Written evidence submitted by Dr William Michael Ramsden, Dr Ronald Raymond Heywood and Rita Gutteridge

EXECUTIVE SUMMARY

  1.  An area previously not addresseed which is highly relevant during a period of economic downturn is the number of commercial borrowers, who despite evidence given to the Committee to the contrary are not being provided with assistance required.

  2.  The results from banks are giving a false impression in that a significant proportion of the financing of monies arises from merely refinancing existing borrowing.

  3.  It is not possible to reconcile the reasoning behind decisions, which appear to be clearly punitive and questionable.

  4.  In revisiting our former evidence, the need for greater transparency remains along with greater accountability for breaches contained in an oppressive policy agenda. The protocols have gone some way to assist debtors facing mortgage repossession, however as the evidence shows over 65% failed to comply with such protocols, the industry Watch Dog, the FSA should be more proactive in ensuring that any code or protocols should be complied with from the start and not left to chance, thus creating greater hardship.

  5.  Penalty charges clearly should be abolished and home visits serve very little, save to rack up further charges.

  6.  The FSA should be extremely pro-active and support the abolition of such charges. If additional work is involved, in dealing with a defaulting borrower, then this should be reflected both in the work involved and be scrutinised if necessary by the FSA.

  7.  The FSA should ensure greater accountability of these charges. It follows that such a lender would be hard pushed to justify the escalation of those costs flowing from a breach.

  8.  The FSA in being pro-active should be seen as an enforcer not a mediator, which will give greater credibility to its role. Sanctions should be imposed upon the industry found to be falling short of any code and or rules.

  9.  In essence, the greater accountability to the FSA, then the stronger the consumer confidence in the industry itself. The more pro-active the FSA with like sanctions, then more confidence will or should lead to fewer complaints.

    1. We welcome this opportunity to submit further evidence to the House of Commons Treasury Select Committee concerning mortgages and secure loan arrears.

    2. The background to the first two witnesses are that they have both worked and practised in area of housing law advice, assistance, advocacy, representation and training for many years based in the North West of England. They have between them previously worked with the Citizens Advice Bureau Service, Shelter, the Law Centre movement and private practice. Further they have appeared and or participated in both radio and TV presentations surrounding housing, consumer and debt matters; instrumental in co-drafting a code of practice appertaining to the conduct of bailiffs.

    3. Such work has extended to frequent representation under the Housing Duty Possession schemes within local county courts. Dr Ramsden is a Barrister[8] and both lawyers[9] have taken a number of cases to the Court of Appeal affecting the Consumer Credit Act,[10] thus assisting many consumers in so far as it related to Mortgage Re-possessions.

     4. Rita Gutteridge is a senior researcher to Dr. Ramsden and her excellent research along with her tenacity has been assiduous to a fault, which has proved to be the corner stone to many issues challenged within the banking industry.

ECONOMIC DOWNTURN

    5. Since the former evidence the economic climate has shown little change and therefore it is necessary to touch upon a number of concerns and the way that some mortgage providers are assisting their borrowers and others less so, whilst racking up costs against their customer.

    6. Of concern during this economic downturn was the number of commercial borrowers,[11] with personal mortgages who arguably were not being provided with the assistance they required. In a sample case study[12] recited below one could not reconcile the reasoning behind one decision, which was clearly punitive and questionable.

    7. Whilst there has always been the need for greater safeguards within possession proceedings, it was hoped that the recent Protocols to be found within the body of the Civil Procedure Rules ("CPR") would lend itself to implementing the checks and balances within the Court Procedure.

    8. It was sad to note that that many High Street, first charge lenders[13] breached the protocol[14], [15] whilst others less so, however equating to 67%, second charge specialist falling short of the above.[16]

    9. In essence borrowers are still faced with problems in terms of repossession and the Mortgage Providers should ensure greater compliance with the Protocols,[17] in order to steer clear of unnecessary costs likely to be incurred for such breaches.

    10. This is essential to avoid deliberations surrounding wasted costs Orders or the like.[18] Moreover if the protocols are ignored then this will indisputably place greater stress upon the Debtor/s at a time when all the help and assistance should be offered in line within the spirit[19] of the Protocol.

    11. A number of reported issues[20] cause extreme concerns when two mortgage lenders are involved, as what may accord to one may not necessary with the other.[21]

PENALTY CHARGES

    12. In our former deliberations[22] reference was made regarding penalty charges, which are often disproportionate and serve to rack up costs thus leaving the debtor in further financial turmoil. A good example is to be found in the case study of "R".

    13. In the above case "R" entered into a first mortgage with "A" being a fixed rate mortgage, for a period of two years.[23] In early 2009 "R" became ill and claimed from his mortgage protection policy to meet the mortgage repayments.[24]

    14. There was a delay in processing the claim[25] and arrears arose with "A" in the sum of £1,700. "R" was unable to expedite the process and therefore arrears accrued during that period, which often is to be found within the terms of such policy.[26]

    15. "A" imposed a penalty charge[27] of £115 per month on "R" without taking account (a) "R's" personal circumstances; (b) that the insurance policy had provided to meet all payments for a period of 52 weeks, following the qualifying period of three months.

    16. As the insurance provided payment following the first quarter there was bound to be subsequent arrears, until such times as the shortfall was met and or capitalised. In essence there would be an additional £1,380.00 per annum added to the mortgage balance and the repayment structure would increase to accommodate both the arrears and penalty charges.

    17. Following the anniversary of the mortgage such costs would then be added and the repayment structure adjusted to take into account the enhanced debt.

    18. It follows that there would be additional interest also on the penalty charges, thus adding further burden upon the pressed debtor. The penalty charge is punitive and serves to rack costs to the debtor and of course such charges can extend to home visits.[28]

    19. The above charges are very often added onto the mortgage thus increasing further, the burden of meeting the monthly charges along with interest thereto. In our view such charges should be abolished and if costs are incurred as a result of such a default they should not extend over the total default period as this flies in face of adversity and offends the basic equitable principle of fairness, to be found within the Industry Code assuming the nature of the lender.

    20. The FSA should take a lead in fully investigating such charges and impose punitive sanctions upon such breaches, which fall short of the above principle.

TRYING TIMES AND DESPERATE MEASURES

    21. The title would suggest that the desperate measures are attributable to the debtor, which of course may be the case, however during the course of advising those falling upon hard times, we became extremely concerned regarding the oppressive action taken by a particular lender who provided both commercial funding as well as a private mortgage facility, through its mortgage centre.

    22. "M" had traded with "RB", for over a decade and during this time had met all payments discharged liabilities and funded other investments, to the satisfaction of "RB". "M" also had a personal mortgage on his home and this had been kept in credit from the inception of the mortgage.

    23. "M's" income was substantially reduced following the collapse of a commercial tenant, thus reducing his income by almost 50%.[29] "M" contacted "RB" and explained the situation. "RB" confirmed that they would consider placing both "M's" mortgage and business loan on an interest only basis.[30]

    24. After a substantial delay of four months "RB" arranged to assess the repayment structure of the complete borrowings including "M's" mortgage. At this stage there had been one missing payment on one loan[31] equating to £9,000. However had "RB" acted with due diligence then it is unlikely that the missing payment would have occurred or at least remained for any duration.

    25. "RB" required various proposals to discharge the £9,000 arrears, however "RB" failed to advise the terms upon which they would place "M's" loans and mortgage repayments from the outset. Further discussions took place however "RB" were dilatory by reason of which a further mortgage payment was missed.[32]

    26. "M" contacted "RB" on divers occasions confirming time was of the essence. "RB" failed to expedite the request and arrears fell upon the mortgage. Following numerous meetings over 12 months with "RB" no mention had ever been made regarding the increase of interest if they acceded to "M's" request to be placed upon an interest only basis for both his business and personal mortgage for a period of 12 months.

    27. In the meantime substantial charges were racked up during the course of those 12 months and therefore the delay by "RB" was extremely self-serving. The situation escalated with costs escalating out of control.[33]

     28. During the delay[34] further arrears arose upon the mortgage[35] although this could have been avoided had "RB" acted with due diligence.

    29. During the final meeting "RB" advised that it was prepared to offer a six-month capital break, however "M" would have to agree to an increase of 2.5% on his commercial loans[36] with a 2% arrangement fee.[37] In essence the six-month capital break would have cost "M" over £75,000 which would have increased his liability following the cessation of the short holiday period.

    30. The above would have caused untold hardship. "M" approached "RB" and in refusing the assistance, enquired whether his personal mortgage could nonetheless be placed upon an interest only basis for the duration of 12 months.

    31. "RB" confirmed that it was the banks policy[38] not to allow interest only, unless a repayment vehicle was in place.[39]

    32. As there was none "M" received no help from "RB" despite having over 80% equity in his home. Moreover the special relationship manager[40] had the power to allow the request for a capital break upon the personal mortgage; however he refused as "M" had failed to take up the offer of a new agreement with associated costs.[41]

    33. The policy was both oppressive and failed to assist the borrower, in any terms unless he accepted a three-fold increase in the interest payments.[42] This example serves to show how the lender can be belligerent to achieve an end to a means, whilst at the same time putting a family's home at risk in order that they could satisfy targets based upon the banking policy[43] of "RB."

    34. When those assisting "M" spoke with "RB" it was confirmed that any relief should be sought from the court pursuant to the Administration of Justice Act 1973[44] and the CPR.

    35. Whilst RB refused to assist its borrowers on an interest only basis,[45] other lenders offer a much more compassionate approach allowing for holiday breaks[46] in the payments structure and of course interest only for a short period of time.

    36. The industry as a whole must establish a code in which to assist its customers although many responsible mortgage providers do as much to assist its customers in a positive sense[47] and such information is freely available from many lenders.

CONCLUSION

    37. In revisiting our former evidence, the need for greater transparency remains along with greater accountability for breaches contained in an oppressive policy agenda.[48] The protocols have gone some way to assist debtors facing mortgage repossession, however as the evidence shows over 65% failed to comply with such protocols, the industry Watch Dog, the FSA should be more proactive in ensuring that any code or protocols should be complied with from the start and not left to chance, thus creating greater hardship.

    38. Penalty charges clearly should be abolished and home visits serve very little, save to rack up further charges. The same elucidation of information, if essential, and could be obtained via the telephone or letter, thus alleviating the necessity of incurring further charges.

    39. The FSA should be extremely pro-active and support the abolition of such charges. If additional work is involved, in dealing with a defaulting borrower, then this should be reflected both in the work involved and be scrutinised if necessary by the FSA.

    40. If the FSA is not minded to support abolition of these punitive sanctions, then it should ensure greater accountability of those prosecuting such charges. It follows that such a lender would be hard pushed to justify the escalation of those costs flowing from a breach, which could amount to £1,380.00 per annum for administration.

     41. Those relying upon penalty charges should form the body of a public register if a finding of fact demonstrates a breach of the principles, which amounts to sharp practice.

    42. The FSA in being pro-active should be seen as an enforcer not a mediator, which will give greater credibility to its role. Without a sting in the tail the FSA carries little weight in an oppressive market. Sanctions should be imposed upon the industry found to be falling short of any code and or rules,[49] and in assessing what amounts to "fair treatment" of the customer, such a task must be done un-blinkered and reflect the seriousness of the complaint if proved.

     43. In this way greater compliance shall be formulated thus providing enhanced credibility to the FSA and more importantly the financial institute whose looks to avoid the sanctions of the Industry Watch Dog by ensuring a greater quality of service thus protecting itself as well as the customer.

     44. The case of RB, clearly demonstrates the need to protect customers from oppression, as they are forced further into debt by the onerous terms. It follows that greater elucidation upon the facts as well as the mortgage provider would assist not only borrowers but also those providing the service of RB to other third parties.[50]

    45. In this way RB would ensure that any protocols would or could stand "public scrutiny" and therefore we call for the amendment to Section 348, of the Financial Services and Markets Act 2000. In this way the public should be able to assess the performance of those providing an essential service, after all this could affect the stability of the family[51] and yet with such disclosure the confidence would be a warning to those who show a scant disregard to compliance of protocols let alone the industry as a whole.

    46. In essence, the greater accountability to the FSA, then the stronger the consumer confidence in the industry itself.

    47. It follows the more pro-active the FSA with like sanctions, then more confidence will or should lead to fewer complaints, as providers strive to improve its service to the consumer, rather than increase complaints,[52] contrary to the deliberations of the FSA.[53]

    48. In this way the FSA will serve not only itself as the overseer of fairness and justice but will also strengthen consumer confidence within the industry, thus providing equality to all seeking and using its service. In this way whilst the FSA considered greater publicity would or could lead to an increase in complaints which may turn out not to be justified, thus not only causing additional burdens on the firm but also disappointing customer expectations.[54]

    49. Such an approach is not sustainable if the FSA is to regulate the industry so often prone to criticism. As failure to do so will in turn ear mark the FSA for like condemnation, it is upon this background that complaints must be fully investigated even if the ultimate decision is disappointing to those seeking redress.

    50. It is not good enough to assume that an adverse finding will dent customer confidence as without true regulation then the industry has failed as a whole in failing to impose standards upon itself thus protecting what could become a tarnished industry by those who are un-committed to the protocols and standards that should be imposed to maintain and or re-establish confidence within the financial sector.

March 2010






8   And author Ascertaining the Boundaries of Legitimate Judicial Intervention (Human Rights). Back

9   Dr Heywood and Ramsden having assisted to set up the first Law Centre in Blackpool. Back

10   Consumer Credit Act 1974. Back

11   Such as those financing his/her business with a bank whilst looking for relief upon the capital repayments to their personal mortgage, in cases of the bank being effectively a "joint lender". Back

12   Case M -v- RB [a Bank]. Back

13   From evidence of AdviceUK; Citizen Advice and Shelter, see: "Turning the Tide? ". Back

14   75% failed to comply with the protocol. Back

15   Mortgage Possession Protocol to be found within the CPR. Back

16   65% failed to comply. Back

17   Ibid. Back

18   Which very often escalates costs in hearing the various legal deliberations as to the rights and wrongs. Back

19   This was to ensure that all steps were taken prior to the commencement of possession proceedings, thus avoiding, the racking up of or unnecessary costs. Back

20   See Mortgage Regulation (February 2010) CAB Submission to the HM Treasury. Back

21   Ibid @ P10, where one mortgage provider accepted terms and the other commenced (2nd Mortgage lender) Possession proceedings for £350 arrears, thus refusing an offer of £30 per month off those arrears thus leaving the debtor in relying upon the discretion of the court. Back

22   Mortgage arrears and access to mortgage finance [Fifteenth Report of Session 2008-09] @ P, EV 142-3. Back

23   From 2008. Back

24   The policy was with an independent insurance company and unconnected with the Lender. Back

25   A delay of three months was encountered. Back

26   The qualifying period would be dependant upon the type and amount paid for the mortgage protection cover. Back

27   In this case it was called "penalty fine". Back

28   Which is mandatory by some lenders before agreeing terms, whilst time raising a charge of at least £100. Back

29   This led to a £45,000 reduction in income leaving M to meet all the business loan he had financed through RB. Back

30   This was after a four month delay, however certain conditions would have to be complied with before consideration could be given. Back

31   Not the personal mortgage. Back

32   Six months following the initial request. Back

33   In one month over £800 costs were incurred, thus adding to the burden of the delay. Back

34   Which was self-serving to the bank. Back

35   Amounting to just over £2,200. Back

36   From 1.5% to 4% for the duration of the loans. Back

37   Despite the remaining loans being arrears free and providing over 80% equity. Back

38   Arguably upon the premise to meet government lending targets on new loans, which this would not (strictly speaking) have been. Back

39   Such as an endowment policy. Back

40   Appointed by the bank to assist customers in financial hardship. Back

41   Amounting to £75,000 for a six month break in the capital repayments of his loans and personal mortgage. Back

42   For "M's" business loan, from 1.5% to 4% plus additional 2% arrangement fee. Back

43   Imposed upon by the Government to encourage assisting small businesses. Back

44   Section 8 and section 36 of the Administration of Justice Act 1970. Back

45   Ibid, unless a vehicle was in place. Back

46   Northern Rock and Cheltenham & Gloucester Building Society. Back

47   Mortgage payment break or interest only providing mortgage is in 75% equity. Back

48   Such as to be found in RB, which clearly was not only oppressive but also designed to force a borrower into substantial financial hardship in complying with the onerous terms thereto. Back

49   Rules of business. Back

50   Assuming that was the case. Back

51   In avoiding disreputable lenders with onerous conditions. Back

52   See Mortgage arrears and access to mortgage finance [Fifteenth Report of Session 2008-09]. Back

53   Ibid @ Para 23 P EV 63, where the FSA claimed that the publicity could lead to increased complaints from customers. Back

54   Ibid. Back


 
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