Sunday, June 23, 2013

23/6/2013: On Dealing with Mortgages Arrears: Adverts v Process

A reply to @cbolgerr regarding the issue of contacting your bank when experiencing financial pressure in relation to mortgages:

In simple term (omitting some considerations), prior to the crisis people were mis-sold mortgages by the banks. Many mortgages were mis-sold on the basis of poor risk pricing by the banks - the job that the banks are paid to do. There was so much mis-selling that the problem of unsustainable mortgages is now structural.

People who mis-sold them these mortgages are still in the banks and are now the same people working on 'resolving' the problems. There were no involuntary layoffs of banking staff and there was no clearing of the banks lending officers or risk management staff on a systemic basis to match the problems in the lending markets. Hence, these staff members are still there. And accepting that they have no new lending to do, these are now the staff working on resolving the mortgages problems. As such, they have neither ability, nor credibility, nor incentives, nor compassion to do anything to repair the damage they have done.

In this environment, and provided the information and power asymmetries awarded to the banks by the Government & Regulator at the expense of mortgagees, the only thing that mortgagees should do is, simultaneously:
1) continue contributing to servicing their mortgages to the extent feasible,
2) prepare as much relevant financial information as possible in order to be able to file FSS,
3) identify an independent, properly regulated and knowledgeable/experienced representation for their case,
4) treat any engagement with the bank as potentially hostile and detrimental to them.

Their first step should be to seek independent advice and representation in the process. Unfortunately, the PIP system put forward by the state is itself at risk of being biased in favour of the banks. Still, it is better than following through on the banks advertising and contacting them before securing independent representation.

There are very few practitioners who have any relevant experience in dealing with the banks. And fewer still willing to help with advice before securing large payments from the homeowners. Care must be given to how the banks and the PIP system are approached.

Key issue, however, is that any mortgage holder under stress should continue engaging with servicing the loan to establish 'good will'. The banks are not required to establish any 'good will' toward borrowers, so the system in inherently unfair and asymmetric, but that is the reality of the fundamentally unjust legal framework established by the government and, for now - until challenged and changed - it has to be obeyed. 
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