CeMAP Post-Completion Issues and Arrears Questions and Answers 1 — Questions and Answers
Question 1: A client has missed two consecutive mortgage payments due to a short-term illness. According to the FCA's MCOB 13 rules, which of the following actions is the most appropriate initial step for the lender to take?
- Commence immediate legal action to repossess the property.
- Sell the mortgage debt to a third-party collection agency without informing the client.
- Make reasonable efforts to reach an agreement with the client over a realistic repayment plan. (Correct answer)
- Apply a significant penalty fee and demand the full arrears are cleared within 7 days.
Correct answer: Make reasonable efforts to reach an agreement with the client over a realistic repayment plan.
FCA's MCOB 13 rules require lenders to treat customers in payment difficulties fairly. This includes making reasonable efforts to agree on a method for the customer to repay the shortfall, considering their individual circumstances. Repossession is considered a last resort, to be used only after all other reasonable attempts to resolve the situation have failed.
Question 2: Following the repossession and sale of a property, the proceeds were insufficient to cover the outstanding mortgage balance, resulting in a shortfall. Which of the following statements is true regarding this shortfall debt?
- The debt is automatically written off by the lender as a business loss.
- The lender can pursue the borrower for the shortfall, which remains a legally enforceable debt. (Correct answer)
- The shortfall is automatically covered by a government-backed insurance scheme.
- The lender must wait 12 months before they can contact the borrower about the shortfall.
Correct answer: The lender can pursue the borrower for the shortfall, which remains a legally enforceable debt.
A mortgage shortfall is the remaining debt owed to the lender after the sale of a repossessed property does not cover the entire mortgage balance and associated costs. This shortfall is a legally enforceable debt, and the lender has a set period (under the Limitation Act 1980, typically 12 years for the capital) to recover the money from the borrower.
Question 3: A client with a capital and interest mortgage is facing long-term financial hardship but has significant equity in their home. As a measure of forbearance, what is a common and viable option a lender might offer to make the monthly payments more manageable?
- Suggest the client take out an unsecured loan to cover the mortgage payments.
- Insist on an immediate switch to a higher variable interest rate.
- Demand the sale of the property within three months.
- Offer to extend the remaining term of the mortgage. (Correct answer)
Correct answer: Offer to extend the remaining term of the mortgage.
Extending the mortgage term is a common form of forbearance offered by lenders to reduce a borrower's monthly payments. By spreading the outstanding balance over a longer period, each instalment becomes smaller, which can provide relief for a borrower in financial difficulty.
Question 4: A homeowner is two years into a five-year fixed-rate mortgage and wants to borrow an additional £30,000 for a significant home extension. They wish to avoid the Early Repayment Charge on their main mortgage. What is the most suitable option their current lender is likely to offer?
- A further advance, potentially at a different interest rate, which runs alongside the existing mortgage. (Correct answer)
- A complete remortgage of the total required amount, which would trigger the ERC.
- An unsecured personal loan, as secured borrowing is capped at the original amount.
- A requirement that they wait until the end of the fixed-rate period before borrowing more.
Correct answer: A further advance, potentially at a different interest rate, which runs alongside the existing mortgage.
A further advance is additional borrowing from the existing mortgage lender that runs as a separate loan alongside the main mortgage. This is an ideal solution for someone within a fixed-rate period as it allows them to borrow more money secured against their property without disturbing their existing mortgage deal and incurring an Early Repayment Charge (ERC).
Question 5: What is the primary nature of the government's Support for Mortgage Interest (SMI) scheme for eligible individuals on qualifying benefits?
- A grant that pays off a portion of the mortgage capital.
- A monthly benefit that does not need to be repaid.
- A loan, secured against the property, which is used to help pay the mortgage interest and must be repaid. (Correct answer)
- A free mortgage advice and counselling service.
Correct answer: A loan, secured against the property, which is used to help pay the mortgage interest and must be repaid.
Since 2018, Support for Mortgage Interest (SMI) is provided as a loan, not a benefit. The loan helps pay the interest on a mortgage for individuals receiving certain qualifying benefits. It accrues interest and is typically repaid when the property is sold or its ownership is transferred.
Question 6: Which of the following statements best describes a lender's primary obligation under MCOB 13 when dealing with a customer who has fallen into arrears?
- The lender must arrange a sale of the property within 6 months of the first missed payment.
- Repossession must be treated as a last resort after all other reasonable options have been exhausted. (Correct answer)
- The lender is required to offer the client a mortgage payment holiday for at least 12 months.
- The account must be passed to a specialist debt collection agency immediately.
Correct answer: Repossession must be treated as a last resort after all other reasonable options have been exhausted.
The FCA's MCOB 13 rules clearly state that a lender must treat a customer fairly and that repossession of the property should only be considered when all other reasonable attempts to resolve the situation have failed. Lenders are expected to explore forbearance options, such as agreeing to a repayment plan, before commencing legal action.
CeMAP Post-Completion Issues and Arrears Questions and Answers 1
A client has missed two consecutive mortgage payments due to a short-term illness.
According to the FCA's MCOB 13 rules, which of the following actions is the most appropriate initial step for the lender to take?