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