Mortgages and Home Finance: Conduct of Business Sourcebook
The FCA’s Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB) is useful to look at when dealing with a mortgage debt case if the loan is a regulated mortgage agreement.
Of particular use is MCOB 13 (arrears, payment shortfalls and repossessions: regulated mortgage contracts and home purchase plans). It covers important areas such as:
•dealing fairly with customers with a payment shortfall: policy and procedures (MCOB 13.3);1 •arrears: provision of information to the customer of a regulated mortgage contract (MCOB 13.4);2 •dealing with a customer in arrears or with a sale shortfall on a regulated mortgage contract (MCOB 13.5);3 •repossessions (MCOB 13.6).4
If the mortgage was made on or after 31 October 2004 (or for second secured loans, after 21 March 2016), it may be regulated by the FCA. If so, the lender is required by the MCOB to deal ’fairly’ with borrowers in arrears and have a written arrears policy and procedures. This should include:
•providing clients with details of missed payments, the total amount of arrears, the outstanding balance due under the mortgage, any charges incurred to date, an indication of possible future charges and a copy of the current MoneyHelper’s information sheet ’Mortgage arrears or problems paying your mortgage’;5 •making reasonable efforts to come to an agreement with the client about repaying the arrears;
•liaising with an adviser or agency if the client arranges this;
•allowing a reasonable time for repayment, bearing in mind the need to establish, where feasible, a practical repayment plan for the client’s circumstances (in appropriate cases, arranging repayments over the remaining term of the mortgage);
•granting the client’s request for a change to the payment date or method of payment (unless the lender has a good reason for not agreeing to this);
•if no reasonable repayment arrangement can be made, allowing the client to remain in possession of the property to enable it to be sold;
•repossessing the property only where all other reasonable attempts to resolve the situation have failed.
The lender must take into account the client’s circumstances and consider whether it is appropriate to agree to:
•extend the term of the mortgage;
•change the type of mortgage – eg, repayment mortgage to interest-only mortgage;
•defer interest payments;
•capitalise the arrears;
•make use of any government mortgage rescue initiatives.
If arrears have been capitalised and rescheduled over the remaining term of the mortgage, they are no longer arrears and so cannot be relied on as the basis for starting a repossession claim. If a client does not pay the full monthly contractual instalment, the lender must allocate the payment in a way that minimises the arrears (which should have the effect of minimising the default interest and charges).
The lender should also have given the client certain prescribed information as above. In addition, many mortgage lenders do not seek possession until payments of mortgage interest are three, or even six, months in arrears.