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Mortgage Arrears Protocol

23-05-2008

Summary

Mortgage Arrears Protocol ( 110kb)

• Citizens Advice warmly welcomes this consultation.  In our view, a pre-action protocol for mortgage possession claims is long overdue for a number of reasons:
  • Bureaux are seeing an increasing number of possession claims for mortgage and secured loan arrears where the lender appears to have used the courts as a first rather than last resort.
  • Regulation of mortgage lending has not stopped lenders using the courts as a first rather than last resort.
  • Advisers report that lenders are less willing to negotiate repayment arrangements before court.
  • the rent possession pre-action protocol has had a positive effect in encouraging social landlords to take a more pro-active and positive approach to the collection of rent arrears.
• Citizens Advice believes that a pre-action protocol for mortgage possession action is essential to ensure that regulation of mortgage lenders works to ensure that only cases where no agreement can be reached actually end up in court.
• A pre-action protocol will have a positive impact on the advice sector in that it will promote negotiations between advisers and lenders and ultimately reduce our work load.  As a result, advisers can help more clients because they will be using their limited resources more efficiently.
• However, to ensure that possession action to is a last resort, the current content of the protocol needs to be revised in a number of respects, including:

• The scope of the protocol must cover possession actions for mortgages, secured loans and secured overdrafts.

• Lenders must discuss with borrowers all the options available for dealing with their arrears problems, and negotiate repayment arrangements which are affordable to borrowers.

• Any arrangement to repay the arrears must take into account the borrower’s current personal and financial circumstances, and relevant caselaw relating to repayment of mortgage arrears over a “reasonable period”.

• Lenders must put in place effective arrangements for borrowers or third parties acting on their behalf to contact them to discuss repayment of arrears.

• Where borrowers are in receipt of ISMI, lenders should not take court action before the account is at least six months in arrears,

• We believe the sanctions for non-compliance should be severe including striking out any claims, disallowing costs and reporting non-compliance to the regulator on a regular basis.

• We also believe that the Judicial Studies Board should produce a handbook for district judges covering all aspects of mortgage and secured lending regulation as well as relevant statute and case law.

• Citizens Advice urges the Ministry of Justice to implement an effective protocol as soon as possible, as the mortgage crisis appears to be deepening by the day.

Introduction

Citizens Advice welcomes the opportunity to respond to the Civil Justice Council’s consultation on the proposed Mortgage Arrears Protocol.

The CAB service is a network of 432 independent advice centres providing free, confidential and impartial information, advice and advocacy from over 3,000 locations in England, Wales and Northern Ireland.  It provides free, independent, confidential and impartial advice to everyone on their rights and responsibilities.  It values diversity, promotes equality and challenges discrimination.

The service aims:

• To provide the advice people need for the problems they face; and
• To improve the policies and practices that affect people’s lives.

In 2006/07 Citizens Advice dealt with 5.5 million enquiries of which 1.7 million related to debt problems.  This represents as 20 per cent rise on the previous year and makes debt the number one issue dealt with by the CAB service.

Since 2005 the CAB service has been helping more and more people deal with mortgage and secured loan arrears problems.  In 2005/06 we dealt with 51,530 enquiries about mortgage and secured loan arrears and in 2006/07 this number increased by 11 per cent to 57,352.

We believe that the number of people seeking advice about mortgage and secured loans arrears has increased sharply in the last three months.  In March this year we compared the number of enquiries dealt with in January and February with the same period in 2007.  This comparison showed a 35 per cent rise in the number of enquiries about mortgage and secured loan arrears.

Statistics from the Ministry of Justice show there were 137,605 possession claim issued in 2007 Statistics on mortgage and landlord possession actions –Ministry of Justice Feb 2008.  More recent figures from the Ministry of Justice showed a further 9 per cent rise in the number of claims issued and a 12 per cent rise in the number of possession orders in the first quarter of 2008 made compared to the last quarter of 2007 Statistics on mortgage and landlord possession actions – Ministry of Justice May 2008.  Possession actions are now approaching the levels seen in the early 1990s, even though figures from the Council of Mortgage Lenders show that fewer mortgages are in serious arrears.

CAB evidence from clients seeking advice on mortgage and secured loan arrears highlights that in some cases lenders have taken borrowers to court without exploring all the other options available to address the arrears.  This is resulting in excessive costs, stress and worry for borrowers which could have been avoided if lenders had acted in accordance with the rules that govern arrears management conduct.

Citizens Advice believes that a mortgage pre-action protocol would provide the courts with a mechanism which they can use to examine the pre-action behaviour of lenders and intermediaries, such as their solicitors.  This would ensure that lenders have really done all they can to reach an agreement with the borrower and that court action really is the last resort.

Mortgage Arrears Protocol ( 110kb)

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