Mortgage Lenders Paying Deposits on a Private Let????? Have you Gone Mad?

Mortgage Lenders Paying Deposits on a Private Let????? Have you Gone Mad?

22:00 PM, 8th November 2011, About 12 years ago 4

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Most readers of my articles know about my work on landlord/tenant law issues. What many of you don’t know is that 50% of my work these days is negotiating with banks to stop repossessions where people are in mortgage arrears, which is a whole different ballgame. You thought landlord-Tenant law was complicated?????

In 1904 an appeal court judge hearing the case of Samuel v. Jarrah Timber and Wood Paving Corporation said “Nobody, I am sure, by the light of nature, ever understood an English mortgage of real estate”…..certainly not me who has to fight the borrower’s corner, nor the army of staff working for banks who argue from the other side. We all hack about hoping we aren’t being too wide of the mark and run cases by county court judges who often look similarly perplexed.

I have just got home from a conference on the very subject of mortgage repossessions, run in tandem by Shelter and the National Homelessness Advice Service (NHAS) and attended by mortgage lenders, people from the government’s Homes and Communities Agency (HCA), the Council for Mortgage Lenders (CML) and about 60 or 70 people who do the same kind of work as me. Frontline troops, who sit in the interview rooms with the desperate and tearful people, represent them in court and argue with the banks on their behalf.

It was a very interesting day and I thought Property 118 readers might like an insight into the issues out there. After all, most landlords have mortgages too so this affects you.

Negotiating with a mortgage company can be a particularly frustrating and embittering affair. You often feel that they are being deliberately obstructive and I think that 80% of the time the staff you are talking to actually are, but having spoken to other people today I think that view or approach might not be shared by the banks themselves.

I got a strong sense of the legislation and regulation that they have to work under that is imposed on them from different directions, like the Financial Services Authority (FSA) and even European legislation which controls some mortgage lending practices.

The CML guy told us in his presentation that last year there were 40,000 repossessions and that this coming year they think that will go to 45,000, although estimates are variable. After what I heard during the rest of the day I reckon that is a very conservative estimate.


Well people like me who negotiate to keep people in their homes have, up until now, used a variety of strategies and tactics to delay possession and hopefully win the day. I don’t feel bad about admitting this; the banks’ tactics and strategies are usually far more manipulative than ours. In that sense it is a bit of a game of who can out-do who, tripping each other up on procedures and paperwork, although for the person in mortgage arrears it is anything but a game.

But this summer the FSA issued guidelines on what is known as ‘Forbearance’, these are the different alternatives to possession that a lender can grant such as reducing mortgage payments, allowing payment breaks etc., saying they should look to the long term before deciding. This has in effect scuppered a lot of the tools of my trade. Thanks a bunch FSA!

Let me give you a specific example.

Changing the type of mortgage to interest only.

The vast majority of people have repayment mortgages, a mortgage whose monthly payments are made up of payments off of the loan and payments off of the interest.

Most mortgage arrears are caused by job loss and when a person is on benefits, in certain circumstances they can get a payment which covers a large part of the mortgage interest, (SMI) so if you can get the borrower to change the mortgage to interest only, the monthly benefit payment goes up and you stand a chance of saving the home.

The problem with this in the long term is that if all you are paying for 15 years is interest, when the mortgage is over you still have to find the money to clear the loan. So the FSA is frowning on changing to interest only mortgages because of the long term effects on both parties.

This has always been a mainstay of negotiating to save a home, now it is 10 times harder to pull off. What we do now is ask for an interest only mortgage but build in a review every 6 months. This is met with variable success, many lenders simply saying “Sorry, the FSA don’t like us to”. End of story.

But to be fair the FSA are taking the big picture view. Simply saving a person’s home in the short term may provide me with great job satisfaction but it does not necessarily save it in the long term and can even, eventually put them in more debt. This also has a knock on effect to the economy as a whole and I was surprised today to find the banks as concerned about the situation as my 60 or 70 home-saver colleagues, albeit for different ‘Bottom line’ reasons.

It was a rare meeting of minds.

What had previously passed me by in my rush to save people’s homes at all cost was the idea that banks need borrowers too and repossession actually costs them a fortune – they often lose money. I don’t think they care about their borrower on an individual level in the way that people in my line of work do but they do care about their investment, and repossession is bad for business.

The A.V.S.

We were all introduced to the “Assisted Voluntary Sale” system, which has the support of the CML and is gaining ground with lenders too. When all else fails and the home can’t be saved, normally the bank repossesses and sells the property, recovering as much as they can from the failed loan.

This is time consuming, resource draining, stressful on the defaulting borrower and costs a fortune.

With AVS the lender can actually work with the borrower to sell the home they can’t afford anymore, even to the point of the lender paying for a RICS valuation and survey, conveyancing fees and…..I kid you not…..even paying 6 month’s rent and deposit up front for a private let, the ex-borrower’s credit rating being knackered by the loss of their home.

Why would a lender do this? Simply because it is quicker and a damned sight cheaper than the usual repo procedure.

Naturally, all of us touchy-feely local authority types jumped on this idea. We couldn’t give a toss about the bank’s investment, just the people who have lost their homes. In cases where this is unavoidable this might just be the softer let-down option for them.

Our bosses will love it too because it means the council don’t have to spend a fortune (£16,000 at the recent estimate) re-housing the family. When so many people can benefit from this scheme you can expect it to gather some ground.

With traditional forbearance methods being cut back, room to negotiate with lenders is going to be very slim. Also, despite sticking more money in the Mortgage Rescue Scheme pot, the administrators of the scheme have to provide value for money, which means restricting the criteria for people to qualify for the scheme, so fewer people will, which means that mortgage repossessions will rise, in my estimation much higher than the 45,000 predicted by the CML.

This is unavoidable, so, being a pragmatist- as believe it or not many in my kind of work are- we are looking to a softening of the inevitable blow. My prediction is that in a couple of years A.V.S.  is going to be very well known.

Oh and I should say…..who is going to pick up the slack of all these mortgage repo’s? You guys! PRS Landlords…..I didn’t say it was perfect.

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Lynne Davis

23:50 PM, 8th November 2011, About 12 years ago

So with an AVS, does the ex-borrower/ex-homeowner stay in the property as a tenant after it's sold, so it's a SARB arrangement? Wouldn't that limit who the property can be sold to?

Ben Reeve-Lewis

9:35 AM, 9th November 2011, About 12 years ago

No Lynne, they lose the home entirely under A.V.S. .

SARB, Lease Options and Rent to Buy dont fit everyone's circumstances. My job is to stop that happening wherever posible but even I admit that the towel has to be thrown in sometimes, its only a question of how it happens.

With the limiting of methods of negotiating that is avialabe since June and the severe curtailing of mortgage rescue in so many areas I have to sensitively deal witrh this issue of home loss with my clients and it often takes a lng time for reality to sink in, I dont push it.

AVS is the last option but is better than being repossesed and waiting months for any possible sum to be returned once the property has been sold. AVS offers a smoother transition and with an element of borrower control over the proces (For many the lack of control is the most depressing aspect) the CMLs estimate of 45,000 mortgage reposessions this year is based on the way things were dont before the FSA called time on many negotiating tools. Up until now I have managed to save 29 out of 30 cases that come to me but with my regular tricks unavailable this may drop to 15 out of 30, so I reckon the true mortgage repo figure is likeley to be much higher

Ian Ringrose

14:50 PM, 11th November 2011, About 12 years ago

This make me very sad, the new FSA guidelines seem just to be making more people homeless while costing the banks more money on repossessions.

Ben Reeve-Lewis

15:15 PM, 11th November 2011, About 12 years ago

Yes it is sad Ian, a sign of the desperate times. For the past 2 years I have, as I said above, managed to save 29 out of every 30 homes that come to me, mainly by trapping the banks who most of the time dont follow the rules that they should. The main one being the fact that by law they are supposed to look into every alternative to saving a person's homes before they go for possession. They rarely do and that is where the success of people like me has been rooted, the lender's failure in procedures.

People also throw in the towel too early because the banks will pursue them right to the end before they are made to back down, often with little legal basis, they just hope the borrower will lose heart and it is my job to make sure they dont.

The lenders cheat and hoodwink their way to possession in nearly every case and people dont realise they can stand up to them and their high powered solicitor firms like Eversheds, TLT and Shoosmiths.

On my website Home Saving Expert I tell people how to call their bluff and tell them what tactics I use to save a home but now I am going to need to do a re-write. For some people delaying tactics are perfect. I have several clients who just needed time to get another job but for the pensioners, the women whose husbands have run off under the pressure (a depressingly common scenario) the once hard worker who got made redundant, has no kids and so is on £65 a week job sekers allowance there is little long term hope and this is what the FSA guidelines published in June address. Its easy for me to side with the person who just so desperately wants to hang onto their family home, even just for a few more months hoping something will turn up but now even I am going have to go for those awful, hand on forearm moments and tell them that the fight is over.

I had to do that this week with a client whose husband, a builder, got stiffed on payment for a loft exptension and got into mortgage arrears. The stress gave him a heart attack and he died in January, leaving his wife, mentally ill daughter and severly disabled grandson with nothing, not even an insurance policy. We fought and fought on this one against a merciless bank but to be honest there was nothing the bank could do, she has no long term financial future. the grenadaughter that loived with her has gone to stay with her dad i canada to get over the death fo her grandad and the widow sleeps on her sister's settee, when 6 weeks ago she lives in a 3 bed house surrounded by her family things.

Life in 2011

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