Guidance notes for local authorities. Government Mortgage Rescue Scheme

Transcription

1 Guidance notes for local authorities Government Mortgage Rescue Scheme May

2 CONTENTS PART I 1. INTRODUCTION Context What is the Mortgage Rescue Scheme (MRS)? How does the shared equity loan option work? How does the Government Mortgage to Rent option work? How does Mortgage Rescue work for homeowners in negative equity? What are the objectives of the MRS? What are the benefits of the MRS? Who are the organisations involved in the MRS? Why all local authorities should have the MRS PART II 2. PREPARING FOR THE MORTGAGE RESCUE SCHEME What should a local authority do to prepare? 18 Meeting money advice Meeting the RSL provider Raising awareness internally within the council Raising awareness externally with key stakeholders 20 Linking up with court desk providers

3 3. IMPLEMENTING THE MORTGAGE RESCUE SCHEME How does the MRS work? An overview of MRS What are the eligibility criteria? The Criteria: how are they met? 25 The 6 steps Step 1: Initial contact / enquiry Step 2: Establishing the lender position Step 3: Involving money advice Step 4: The MRS assessment o Completing the MRS application form o Carrying out a home visit o Finding out who owns a property o Determining eligibility, risk of homelessness & category of priority need o Checking for outstanding charges and property disputes o Estimating a household s income o Property valuations and negative equity o Property price caps and flexibility o Checking the property is appropriate to continue to live in o Bankruptcy and MRS o When the homeowner meets the MRS criteria o When the homeowner does not meet the MRS criteria 3

4 Step 5: Request to the lender to freeze all possession proceedings Step 6: Referral to RSL provider COMPLAINTS MONITORING & EVALUATION 48 4

5 APPENDICES 1. Information on a range of Government measures to prevent homelessness due to mortgage repossessions 2. Calculated examples of the shared equity loan option where mortgage rescue has taken place and homeowner returns to full ownership 3. A plain English MRS template RSL providers will issue to homeowners 4. A plain English leaflet produced by CLG that local housing authorities will issue homeowners applying for mortgage rescue 5. A list of other options available to homeowners in mortgage difficulties 6. Money advice process pack - provides detailed information on the part that money advice plays in a MRS as well as other information that may be useful to local housing authorities operating a MRS 7. A suggested checklist, drawn up in consultation with money advice agencies for the meeting between a local housing authority and money advice 8. A suggested model Service Level Agreement drawn up in consultation with money advice agencies 9. A list of RSL providers 10. A spreadsheet of local authority MRS champions 11. National Homelessness Advice Service leaflet for homeowners in mortgage difficulties 12. FAQs that can be used by organisations to respond to enquiries 13. A checklist that court desk providers can use to identify homeowners eligible for MRS 14. MRS process flow chart 15. A table of regional property cap levels 16. Information about independent financial advice 17. A mortgage difficulty initial enquiry form for use by a local housing authority 5

6 18. The Civil Justice Council s Pre - Action Protocol 19. A sample letter similar to letters that lenders will send out to confirm hardship options have been exhausted and possession proceedings will commence 20. A sample referral form that can be used by a local housing authority referring homeowners to money advice 21. A sample debt pack that can be used by a local housing authority referring homeowners to money advice 22. A financial statement drafted by money advice agencies to determine MRS is an affordable option 23. A sample confirmation of advice letter for use by money advice agencies 24. A MRS application form 25. A home visit checklist 26. A guidance note and Q&A on benefit rules and MRS 27. Information from the Insolvency Service on bankruptcy and MRS 28. A list of lender MRS champions 29. A list that can be used by a local housing authority when referring households to an RSL provider 30. Information on support provided by RSL s to households assisted through the Government Mortgage to Rent option 31. Local authority MRS monitoring spreadsheet and guidance notes 32. FAQs on MRS for local authority staff generated at MRS delivery summits 6

7 PART 1 1. INTRODUCTION 1.1 Context In difficult economic times the Government is committed to doing everything possible to provide support in the short term for homeowners facing difficulties, and promoting the long term stability of the housing market. Annual repossessions in 2008 totaled 40,000, a 54% rise on the previous year. Although this equates to only 0.34% of all mortgages (1 in every 290 mortgages) which is less than half the rate seen in 1991 (75,000 repossessions, 0.77% of all mortgages or I in 130 mortgages), the current environment is extremely challenging. The total number of mortgages in arrears of more than 3 months has risen to 219,000 (1.88% of all mortgages) and voluntary repossessions have increased as a percentage of all possessions (from 8.5% of all possessions in 2004 to 18.6% of all possessions in 2008). By the end of 2009 the Council of Mortgage Lenders (CML) expects 500,000 households to be more than three months in arrears and anticipate the number of repossessions to be around 75,000. For those affected, repossession is a major trauma that can have a negative impact on relationships, health, well-being and quality of life. In the current challenging economic climate many people are worried that they could lose their home. That is why the Government has taken steps to protect homeowners at risk of repossession and set out an extended package of support to help households stay in their home. The Mortgage Rescue Scheme (MRS) is one of a number of new initiatives designed to enable homeowners, at risk of homelessness through repossession, to hold onto their homes in the current economic climate. This set of guidance notes is in two parts:. Part I of the guidance puts the MRS in context. It explains what the MRS is, why a local housing authority should have the scheme and who is eligible for the scheme. Part II provides a step-by-step guide for local housing authorities on how to set up and operate the MRS. The appendices referred to throughout the document provide some useful tools and can be found at the back of this guidance. 7

8 1.2 What is the MORTGAGE RESCUE SCHEME? In response to increased mortgage repossessions and the associated increased risk of homelessness, Communities & Local Government (CLG) announced a 200m Mortgage Rescue Scheme (MRS) in September MRS went live on 1 st January 2009 and further funding of 80m was announced in May when the scheme was expanded to include homeowners in negative equity. It is part of a wider package of measures to help homeowners through the current economic downturn. These wider measures include support to out-of-work homeowners who may be eligible for Support for Mortgage Interest (SMI), reducing monthly mortgage repayments; support to homeowners who have suffered a drop in income and who may be eligible for the new Homeowners Mortgage Support allowing them to defer part of their loan and reduce monthly payments; extra advice for households at court; public awareness campaigns and debt advice and a local authority Repossession Prevention Fund. (Appendix 1 provides more information on other Government measures) The MRS is a targeted and specific homelessness prevention tool for vulnerable households. It is intended to provide an additional safety net for up to 6,000 vulnerable households who are at risk of losing their home through repossession over the next 2 years. Depending on their specific circumstances, homeowners eligible for help under the MRS may be offered either: Or A shared equity option, which enables the homeowner s monthly mortgage payments to be reduced Government Mortgage to Rent which enables the homeowner to remain in the property as an RSL tenant on an assured short hold tenancy, paying an intermediate rent The MRS is a discretionary scheme a local housing authority is under no statutory obligation to offer such a scheme although it is anticipated, in the current economic climate, that all will decide to operate the scheme to compliment existing homeless prevention options. Where an authority decides to do so, this will not alter its statutory obligations under the homelessness legislation. In particular, where an authority is providing 8

9 assistance to someone who is at risk of homelessness the authority must consider whether they have reason to believe the person may be likely to become homeless within 28 days. If there is such reason to believe, the authority must make inquiries to satisfy themselves whether any duty is owed to that person under the homelessness legislation (Part 7 of the Housing Act 1996). The MRS requires collaborative working, clear communication, and written agreements between mortgage lenders, money advisors (MA), local housing authorities (LHA) and Registered Social Landlords (RSL s), in order to deliver successful outcomes for households threatened with repossession. The MRS will not provide a solution for every homeowner at risk of mortgage repossession. In all cases, local housing authorities should consider carefully the full range of options available to homeowners faced with repossession. The MRS is just one of a number of options. 1.3 How does the shared equity option work? Key features of the shared equity loan option are: A homeowner has a minimum of 25% equity and a maximum of 40% equity An RSL provider gives a loan of between 25 and 75% of a homeowner s current mortgage direct to the homeowner s lender This loan is secured against the property as an equity loan The homeowner s outstanding mortgage is reduced in line with the equity loan Monthly payments are made by the homeowner on the remaining mortgage and the loan An interest fee of 1.75% pa (increasing by RPI plus 0.5% pa) is charged on the equity loan, payable in monthly instalments by the homeowner An equity contribution of 3% of the value of the loan is paid by the homeowner to take part in mortgage rescue Once rescued, repairs and maintenance continue to be the responsibility of the homeowner 9

10 The homeowner can pay off the loan, in full or in stages, at any time. The amount payable increases if the value of their home increases Shared equity example Value of home 180,000 Outstanding mortgage 130,000 Monthly payment 787 Pre existing equity 50,000 Intervention- 50% of Mortgage paid in Equity Loan - 65,000 *Home owner equity contribution 1,950 Total equity loan 66,950 Outstanding mortgage 65,000 Retained equity 48,050 New monthly mortgage payment 380 Monthly shared equity fee 95 Total new monthly payment 478 Monthly Saving 309 *note this is not a cash contribution (Appendix 2 provides examples of the shared equity option for a rescued homeowner returning to full ownership) 1.4 How does the Government Mortgage to Rent option work? Key features of the Government Mortgage to Rent option are: A homeowner has an existing mortgage of between 75% and 120% of the value of the property An RSL provider buys the homeowner s home and rents it back 10

11 The property is purchased for 97% of the current market value An equity contribution of 3% of the value of the loan is paid by the homeowner to take part in mortgage rescue. For a homeowner with less than 3% equity or a homeowner in negative equity, the 3% contribution is, in effect met by lender(s) write off (this requires lender agreement) The RSL provider owns 100% of the freehold or leasehold The RSL grants a 3-year assured shorthold tenancy Rent is set at an intermediate rent level (market rent less 20%) which should be eligible for payment of Housing Benefit if the household is eligible Repairs and maintenance are the responsibility of the RSL Mortgage to Rent example Value of home 180,000 Outstanding mortgage 165,000 Monthly payment 963 Pre existing equity 15,000 Intervention - property purchased for value of home minus HEC - 174,600 *Home owner equity contribution (HEC) 5,400 Equity realised by household 9,600 RSL provider owns 100% of freehold or leasehold Assured shorthold tenancy granted at intermediate rent for 3 year fixed period Monthly intermediate rent 720 Monthly saving 243 *note: this is not a cash contribution (Appendix 3 is a plain English template that RSL providers issue to homeowners referred by local authorities for mortgage rescue. It outlines the products and the implications for both in more detail) 11

12 (Appendix 4 is a plain English leaflet produced by CLG that local housing authorities issue to homeowners applying for rescue 1.5 How does Mortgage Rescue work for homeowners in negative equity? On 22 nd April 2009 the Government announced the expansion of the Mortgage Rescue Scheme to include some homeowners in negative equity. Negative equity is the situation where someone s house has become worth less than their mortgage and any other secured loans combined. Mortgage rescue applications can now be considered from homeowners in mortgage difficulties, in cases where the levels of debt (mortgage and secured loans) exceeds the value of the property by up to 20%. In other words, homeowners with a Loan to Value of less than 120% who are at risk of repossession can be considered for rescue. In many cases any overhanging debt will be dealt with by the lender(s): writing off the debt which exceeds the value of the property, or allowing any debt to remain as an unsecured debt; (which would need to be repaid if the borrower s circumstances improved); or allowing the debt to remain and charging the borrower a nominal charge (again the borrower would need to repay the debt if their circumstances improved). Lender(s) have indicated a willingness to consider write off options on a case by case basis as they would do in any case shortfall if they had to take possession and sell the property. Write off will depend on the individual circumstances of the case. There is however no guarantee that the lender(s) will write off any debt and it is possible that rescue may not proceed. Local authorities will need to check the willingness of the lender(s) to write off options during initial enquiries and secure agreement at formal application stage before passing to the RSL. Where lender(s) are unwilling to take any of the above measures, or the level of write off the lender(s) is willing to accept falls short of the total overhanging debt, local authorities can make use of the Repossession Prevention Fund to offer small loans to top up and deal with negative equity (separate information to follow). 12

13 No additional cost is incurred in rescuing a homeowner is negative equity by the RSL, who will continue to make an offer of 97% of the home value (as they would if the homeowner had the necessary 3% equity) to the lender(s) and then negotiate write off for any overhanging debt. For Example: A customer has a property worth 100k and a mortgage of 115k. The RSL will make an offer to purchase the property for 97k (97% of the market valuation). The lender can agree to a full and final settlement by reducing the loan to 97k and accept the RSL offer. If the lender is unwilling to accept a full and final settlement and instead offers to write off 15K, the local authority could agree a loan with that household for the outstanding 3k to be able to meet the RSL's offer of 97% of the market value. Alternatively, the Lender may decide to accept the shortfall amount of 97K, release their charge, and place the 18K as an unsecured debt on the customer. Instances like these would require the customer to advise the lender of how much they could afford to pay each month on that shortfall, and many lenders would be willing to accept a nominal amount each month (Appendix 5 provides a list of other options available to homeowners in mortgage difficulties) 1.6 What are the objectives of the MRS? To prevent homelessness by avoiding mortgage repossessions wherever possible To help people remain in home ownership where it is sustainable and affordable for them to do so To make mortgage repossession an option of last resort To promote community stability during a period of economic difficulty 1.7 What are the likely benefits of the MRS? The estimated benefits over 2 years are: Preventing homelessness, and its attendant disruption and dislocation, for up to 6,000 priority need households 13

14 A saving to local housing authorities on the costs of responding to homelessness and the provision of temporary accommodation 1.8 Who are the organisations involved in the MRS? There are four key organisations involved in MRS Lenders Money advice agencies Local housing authorities Registered Social Landlords Lenders are key because they have a range of hardship options to help households in mortgage difficulties avoid repossession. Many of the options lenders are able to offer borrowers do not require local authority involvement in many cases (refer to page 29 for more details of lender options). Only when lenders have exhausted all hardship options will a homeowner be eligible to be considered for help under the MRS. A willingness to write off overhanging debt will be crucial in rescuing homeowners in negative equity. Money advisors are key because they will need to provide an assessment of a homeowner s financial ability to remain in home ownership, based on a prepared financial statement. This financial statement will enable the homeowner to consider whether mortgage rescue would be a viable option, and provide an indication of the likely type of rescue that would be appropriate. Homeowners will not be eligible for help under the MRS until a financial statement has been completed by money advice. Money advisors can also help homeowners maximise their income and tackle any debt issues that may have led to mortgage arrears and the risk of repossession in the first instance. (Appendix 6 Money advice process pack provides detailed information on the part that money advice agencies play in the MRS as well as other information that may be useful to local housing authorities operating the MRS) 14

15 Local housing authorities are key because they have primary responsibility for preventing homelessness. Local housing authorities may be the first point of contact for many households in mortgage difficulties. The local housing authority s role in the MRS is to: Assess whether a household meets the MRS criteria Find out, where homeowners appear to be in negative equity, if the lender(s) is willing to write down some or all of any overhanging debt Process the MRS application Collate supporting evidence Secure support and agreement for one of the recommended MRS products from all the key organisations Refer homeowners who meet the MRS criteria to a designated RSL provider Case manage and track applications and communicate with all stakeholders at each step of the MRS process Advise and assist homeowners who are not eligible for MRS on alternative options Issue small loans from the Repossession Prevention Fund where appropriate to aid rescue Registered Social Landlords (referred to as RSL providers throughout this document) are key as they provide match funding to enable rescues to complete. They also assess each case against a pre-determined financial model to decide on the best product (shared equity loan or Government Mortgage to Rent) to help the homeowner. RSL s are responsible for all formal rescues offers, sales processes and ongoing management of any properties purchased. 1.9 Why all local authorities should have the MORTGAGE RESCUE SCHEME The MRS is intended to complement existing homelessness prevention options in England, and whilst participation in the scheme is discretionary, it is difficult 15

16 to justify, in the current economic climate, why an authority would not operate a scheme that can provide some of its most vulnerable homeowners with an opportunity to remain in their own homes and help to make repossession truly a last resort. Despite challenging market conditions there is real evidence that targeted intervention delivers positive outcomes for households affected by the economic downturn. The MRS provides authorities housing teams with an additional tool to compliment the suite of existing homelessness prevention options deployed through local homelessness prevention strategies. Even where the number of mortgage repossessions may be relatively low and successful operation of other homelessness prevention options might appear to negate the need for the MRS scheme, authorities are encouraged to carefully analyse and regularly review a wide range of data to determine the scale and impact of repossession fully. The Council of Mortgage Lenders (CML) and the Ministry of Justice issue data on mortgage repossessions and arrears and court claims and orders respectively. This data can be found at This data together with local employment information, data derived from P1Es (repossessions and relationship breakdowns from homeowners) and court desk statistics will assist local authorities to determine the scale and impact of mortgage repossessions now and in the future and help to make an informed decision on operating the MRS. If an authority does decide not to operate the MRS, in accordance with the statutory duty to provide advice and assistance to prevent homelessness, there is a requirement to ensure appropriate arrangements exist to advise and assist homeowners in mortgage difficulties. 16

17 PART II 2. PREPARING FOR THE MORTGAGE RESCUE SCHEME 2.1 What should a local authority do to prepare? This is what we suggest are the key tasks that a local housing authority should carry out in preparation for implementing the MRS. There are 4 preparatory stages: 1. Meeting money advice 2. Meeting your RSL provider 3. Raising awareness internally within your council 4. Raising awareness externally with key stakeholders Stage 1: Meeting money advice The relationship between money advice and the local housing authority is fundamental to the success of the MRS. The actions that a local housing authority should take are: Find out who provides money advice in the local area if you don t already know Money advice lists showing money advice activity at local authority level in each local authority area have been compiled by CLG and previously distributed to authorities. Please note that these lists have been compiled using Experian data and may not include all known money advice providers. If your authority has a good working relationship with a provider that is not on the list and is satisfied with the quality of advice given, there should be no reason for not using that provider. If your authority has been approached by agencies promoting debt advice and you are not sure about their credentials, you are encouraged to check that they are not fee charging providers and obtain evidence that they meet recognised quality standards. ( for information on money advice standards) 17

18 Arrange a meeting with the local money advice providers to discuss roles and responsibilities, share information about the MRS and how it might work locally, discuss referral arrangements and agree a review process (Appendix 7 provides a suggested checklist, drawn up in consultation with money advice agencies which can act as a useful prompt for this meeting) Set up a Service Level Agreement (SLA), or review an existing one with your local money advice provider. A SLA will encourage closer working between the local housing authority and money advice provider and help prioritise homeowners who need support (Appendix 8 provides a model SLA drawn up in consultation with money advice agencies) Agree how information will be shared between the local housing authority and money advice to ensure both agencies are kept up to date on cases. Maximise any local authority in house money advice services (where they exist), to enhance the provision available in the voluntary sector Consider establishing a local authority in house money advice service to supplement local provision and increase capacity where there is demand and resources permit. Where an authority does provide its own in house money advice service, it should comply with National Occupational Standards and Legal Services Commission quality mark requirements If your authority experiences difficulties in accessing money advice locally, contact the Mortgage Rescue Delivery Team at CLG on mortgagerescue@communities.gsi.gov.uk for help in accessing national money advice providers or go to: n.com; In non-unitary areas, the county council may provide money advice on a county basis. It is therefore advisable to make contact with the relevant county strategic officers Stage 2: Meeting the designated RSL provider The relationship between the local housing authority and RSL provider will be crucial. 18

19 It is essential to meet the local RSL provider early to agree referral arrangements, evidence requirements, lines of communication and timescales. Timely decision making on MRS applications passed to an RSL provider will be critical as lenders have agreed to freeze additional interest, fees and repossession action for a 3-month period only. The actions a local housing authority should take are: Find out the designated RSL provider for your area (Appendix 9 provides a full list of RSL providers) Arrange a meeting - particularly important where the RSL provider is not in the local authority area Agree with the RSL provider the referral process, information requirements, how information will be exchanged, named contacts, timescales and feedback arrangements Agree with the RSL provider how to handle any disputed cases or cases where property valuations exceed property price caps Where the RSL provider covers a number of local authorities it may be sensible to set up a joint meeting to include all the neighbouring local authorities Stage 3: Raising awareness internally within the council It is important to raise awareness of the MRS internally within your local authority. Preventing homelessness is a corporate priority; it requires the commitment of all services across the authority to be successful. Homeowners in mortgage difficulties may come to the attention of a range of departments including social services, neighbourhood services, revenues & benefits, education and others. Some homeowners in difficulties may also contact elected members. 19

20 The actions a local housing authority should take are: Consider appointing a MRS champion within the corporate management team or at a minimum, a lead practitioner within the housing service with responsibility for co-ordinating your authority s response to the MRS. Shared arrangements may be appropriate in non-unitary areas or among smaller rural authorities (Appendix 10 provides a spreadsheet of local authority MRS champions broken down by Government Office) Make sure the authority s front line customer services (including switch board operatives, call centre staff etc.) are aware of the MRS and how they should respond if they receive an approach from a homeowner in mortgage difficulties. Ensure that front line services know who they should refer the caller to Include MRS briefings in homelessness and housing options team meetings Integrate this MRS guidance note into the local housing authority s existing homelessness prevention toolkit Brief elected members on the MRS via scrutiny panels and portfolio lead member briefings Brief the authority s press office on the MRS. It would be sensible to provide the press officer with a copy of this toolkit and the published FAQs Consider holding local promotional events or campaigns to encourage homeowners in mortgage difficulties to seek advice as early as possible Stage 4: Raising awareness externally with key stakeholders Local court desk providers, CABx, other voluntary sector providers, MPs and other organisations may be approached by homeowners in mortgage difficulties. They will need to know about the MRS, what measures the local housing authority is taking and how to refer homeowners who may benefit from the scheme. Often such organisations can provide initial information and advice to homeowners in mortgage difficulties and reinforce key messages. 20

21 Linking up with your court desk providers to reduce repossessions Given the role that court desks play in reducing repossessions there is a natural link between their role and the MRS. Court desk staff will see homeowners threatened with repossession; some will be eligible for the MRS. Possession proceedings are heard in your local County Court. These hearings are presided over by a District Judge and usually take place on set days in the week or during the month. The Legal Services Commission (LSC) and CLG fund the provision of court desks across England These desks are usually staffed by representatives from Shelter or CABx and provide crucial advice for homeowners threatened with repossession. Court desk providers have been briefed on the MRS. The actions a local housing authority should take are: Issue copies of the National Homelessness Advice Service (NHAS) leaflet to all relevant agencies (Appendix 11 provides a copy of the NHAS leaflet for homeowners in mortgage difficulties) Provide a copy of the standard FAQs drafted for members of the public (Appendix 12 provides a copy of FAQs and responses that can be used by organisations to respond to public enquiries) Meet regularly with your court desk provider to share information, data and learn from best practice Agree the MRS referral route with your court desk provider or a MRS hot line for court staff so that they can reach your MRS champion quickly if needed Organise a shadowing opportunity for your MRS champion to spend time with court desk staff to help fine tune your relationships Issue a checklist to local court desk providers to assist with identifying homeowners that might be eligible for the MRS (Appendix 13 provides a checklist for use by a court desk provider) 21

22 Brief local homelessness fora and other similar stakeholder networking events Consider compiling and distributing a local information pack for homeowners in mortgage difficulties, containing a copy of the NHAS leaflet and useful local contact numbers 3 IMPLEMENTING THE MORTGAGE RESCUE SCHEME 3.1 How does the MRS work? The previous section described the 4 preparatory stages that a local housing authority needs to consider before implementing the MRS. This section explains the MRS journey - the actual process. It describes step by step (there are 6 steps in total) what a local housing authority will need to do starting with step 1 - when the authority receives an initial enquiry or application for help - and ending with step 6 - when the authority refers a homeowner that has met the criteria, to the designated RSL provider for rescue. This section also explains how a homeowner will qualify for help under the MRS. It provides details of the evidence that a local housing authority will need to collect along the MRS journey to demonstrate that the homeowner qualifies. It is important to remember that the journey described is a model case. Not every case will fit the model because some homeowners in mortgage difficulties: May contact a range of organisations and may not contact the local housing authority direct May make initial contact at different stages, some as soon as they have received a letter from their lender; others part way through the repossession process, some just before an eviction May have supporting information; others may have none or very little A local housing authority will need to adapt the model to take account of individual circumstances. 22

23 3.2 An overview of the MORTGAGE RESCUE SCHEME An MRS flow chart has been constructed to help local housing authorities understand the overall process. (Appendix 14 provides the MRS process flow chart. For best effects this should diagram should be viewed in colour) The MRS flow chart maps: The 4 key organisations involved in the MRS: Blue lenders Yellow money advice Green local housing authority Red RSL provider The key relationships between these 4 organisations How information should flow between these 4 organisations The actions that need to be taken by each organisation and the order of those actions The model route a homeowner in mortgage difficulties should take (starting with an enquiry and ending with a successful mortgage rescue) The stages where a homeowner in mortgage difficulties may fall out of the MRS 3.3 What are the eligibility criteria? A summary This section provides a summary of the scheme criteria. Detailed step by step information on how each of the criteria should be assessed by the local housing authority is at page 25. Details of the evidence that a local housing authority needs to collate to demonstrate that the eligibility criteria have been met are on page 36. The MRS is intended to help eligible homeowners who fall within one of three priority need categories in the homelessness legislation (see over page) and who 23

24 are at risk of homelessness as a result of mortgage repossession and who would be owed a duty to secure accommodation under the homelessness legislation if they became homeless through no fault of their own and to whom other options to prevent mortgage repossession are not available or would not be sufficient to avoid homelessness. The three priority need categories are that the homeowner must be (1) a person with whom dependent children reside or might reasonably be expected to reside; (2) a pregnant woman or a person with whom she resides or might reasonably be expected to reside; or (3) a person who is vulnerable as a result of old age, mental illness or handicap or physical disability or other special reason, or with whom such a person resides or might reasonably be expected to reside (see section 189(1)(a)-(c) of the Housing Act 1996). Before a local housing authority refers a homeowner ( the applicant ) to an RSL provider for mortgage rescue, the authority must satisfy itself that the following grounds are met: 1. Having explored all viable alternatives to repossession including the exhaustion of lender s hardship options, the applicant s lender is prepared, in principle, to support an application for mortgage rescue 2. The applicant has, or will be able to provide, an up-to-date financial statement, obtained from money advice which demonstrates that mortgage rescue may be a viable option 3. The applicant is a homeowner, who wishes to remain in his or her home, a home that must be the only home and is at risk of homelessness through repossession as a result of mortgage difficulties 4. The applicant would be eligible for assistance under Part 7 of the Housing Act 1996 (i.e. they are not excluded under section 185 of the 1996 Act) 5. The applicant has a priority need for accommodation within the meaning of section 189(1) (a)-(c) of the Housing Act There are no outstanding charges other than those proposed to be cleared by mortgage rescue or ownership disputes. Where the total amount of debt secured against the property (charges and mortgages) added together exceeds the value of the property, placing a homeowner in negative equity, MRS can be considered providing the Loan to Value is not greater than 120% and agreement to write off the overhanging debt has been reached with the lender(s). 24

25 7. The applicant s households gross income is less than 60,000 per annum 8. An up-to-date valuation of the applicant s property indicates that mortgage rescue would be a viable option for all parties, taking into account the maximum property cap for the region and Loan to Value ratio (not greater than 120%) Note: where an applicant who is eligible for the scheme and could not be assisted in any other way, has a property valued in excess of the cap, the local authority should immediately flag this with the RSL provider who will contact the HCA regional investment team for advice (see page 39 for more information on property price cap flexibility) (Appendix 15 provides information on regional property cap levels. These were revised in May 2009) 9. The offer of a mortgage rescue product would provide a housing option for the applicant that would be affordable and sustainable 10. The applicant has been provided with sufficient time, advice and assistance to give him a reasonable opportunity to seek independent financial advice and make an informed choice about the products offered by the RSL provider. (Appendix 16 provides information on independent financial advice) The earlier that homeowners in difficulty can be offered help, the greater the chance of success. Note: following changes to the scheme, announced in April 2009 some homeowners in negative equity are now eligible for support under the MRS. ( see page 12) Note: where a homeowner is likely to become homeless within 28 days, that is, s/he is threatened with homelessness within the meaning of section 175(4) of the Housing Act 1996, the local housing authority will need to make inquires under section 184 of the 1996 Act to determine whether any duty is owed under the homelessness legislation. However, mortgage rescue support can be provided in parallel with making these statutory inquiries and it may still be possible to prevent homelessness. 3.4 The criteria: how are they met? A step by step consideration The criteria summary on the previous page is now broken down step by step in this next section. 25

26 There are 6 steps that a local housing authority will need to carry out from responding to an initial enquiry through to completion, or not, of a mortgage rescue to be satisfied that the homeowner meets all aspects of the criteria. Step 1: the initial enquiry stage This begins when an authority receives a request for help or advice from a homeowner in mortgage difficulties. This contact could be a phone call or a face to face enquiry. The homeowner may self-refer or be referred to the authority by another organisation. What should a local housing authority do? Regardless of who makes the enquiry, how a referral is made or who receives the enquiry, a minimum response is required. As a minimum, the authority SHOULD: Give the following initial advice and assistance Encourage the homeowner to talk directly to their lender Remember: People in mortgage arrears are often fearful of dealing directly with their lender but doing so is crucial as many financial problems can be resolved this way. Lenders will want to help borrowers to avoid repossession. The Council of Mortgage Lenders (CML) has endorsed the national MRS. CML members hold 97% of all mortgages in the country If the homeowner has spoken directly to their lender and matters remain unresolved, encourage them to seek free, independent legal advice from local advice agencies such as CAB, Shelter or a law centre. These organisations may be able to negotiate with lenders on behalf of homeowners in mortgage difficulties If these steps have already been taken by the homeowner and matters remain unresolved your authority should arrange to see the homeowner to discuss his or her housing options Give or send an advice pack to the homeowner that includes a copy of the NHAS leaflet and contact numbers for local advice organisations 26

27 Record enquiries from homeowners in mortgage difficulties and the outcome of those enquiries Record all cases where the homeowner has received a 15-day letter from the lender warning of commencement of possession proceedings Recording the enquiry will Help your authority gather information in an orderly way Give an early indication of the urgency of the enquiry and the need to prioritise Give an early indication if lender and money advice options have been exhausted Give an early indication if the lender(s) is willing to consider write off options on any overhanging debt where the homeowner is in negative equity Give an early indication whether the homeowner may meet the MRS criteria Help filter those cases that clearly do not meet the MRS criteria and may require some other form of assistance Provide useful information for monitoring purposes Help manage expectations and minimise fall out at later stages Establish if there are any existing charges on the property Your authority COULD Use the mortgage difficulty initial enquiry form to record details of all homeowners in mortgage difficulties that approach the authority for advice or assistance (Appendix 17 provides a mortgage difficulty initial enquiry form that your local authority may wish to use) 27

28 Use an existing in house housing options form (if your local authority has one) to record details of all homeowners in mortgage difficulties that approach your authority Where resources allow, it may be helpful to offer all homeowners in mortgage difficulties a mortgage-focussed housing options interview Such interviews may need to be arranged in the homeowner s own home if a member of the household is unable to get to your local office, for example, due to disability. Whatever approach your local authority chooses there will need to be some flexibility. Assess the needs of each case on its merits! Step 2 Establishing the lender position Confirming that the lender has exhausted its hardship options and is prepared, in principle, to support the MRS (criteria 1) is an essential step. Confirming that the lender(s) is willing, on a case by case basis, to consider a write off options for any overhanging debt where a homeowner is in negative equity, is also essential at this step What should a local housing authority do? You MUST: Be certain that the lender has exhausted all its hardship options Why? A local housing authority cannot consider offering a homeowner mortgage rescue support until the lender confirms that all hardship options have been exhausted. This is demonstrated when a lender issues a letter to the household which confirms that the lender has or will (but not might ) commence legal proceedings because all other options have been exhausted. 28

29 This can also be demonstrated by a letter from the lender advising that the lender is proposing to enforce a possession order they already hold and intend to take possession of the property. This process has been agreed by lenders and is set out in the Civil Justice Council s Pre-Action Protocol (Appendix 18 provides a copy of the Civil Justice Council s Pre Action Protocol. It sets out the negotiations expected between the lender and the borrower before a case comes to court). What are lenders hardship options? A lender can: Agree to change or lengthen the term of a homeowner s loan Accept reduced payments from a homeowner in the short term Add a homeowner s arrears to the amount borrowed Reduce a homeowner s monthly mortgage payments for a certain period Cut the charges it makes to a homeowner for being in debt with his mortgage Spread repayment of the total amount a homeowner owes Offer a homeowner a better loan rate Allow a homeowner time to sell his home if that s what he wants How can a local housing authority be certain that a lender has exhausted all its hardship options? Your local authority will need to obtain a copy of a letter from the homeowner s lender that confirms that legal action to recover possession will (not might) be, or has been commenced. (Appendix 19 provides a sample letter similar to those letters that lenders issue to confirm that hardship options have been exhausted and possession proceedings will commence) 29

30 Your authority MAY need to: Contact the lender direct, via the debt recovery team, to confirm what stage repossession proceedings are at, and to obtain a copy of the letter You will need to obtain written permission from the homeowner and send this to the lender Alternatively, ask the homeowner who should have received a copy of the letter from the lender. Letters from lenders will vary but all will include information that confirms that repossession proceedings will be, or have already been, commenced Refer the homeowner to money advice so that they can assist in negotiating with the lender What can a local authority do if a lender(s) is not willing to write off the overhanging debt for a homeowner in negative equity? There is no guarantee of rescue where a lender(s) is unwilling to: write off the overhanging debt over the value of the property, or allow any overhanging debt to remain as an unsecured debt; or allow any overhanging debt to remain and charge the borrower a nominal fee or write off some but not all of the overhanging debt A local authority can make use of the Repossession Prevention Fund (a 20m fund announced in May 2009 to enable local authorities to help prevent repossession) to offer small loans to assist homeowners in negative equity.(separate information to follow) In some circumstances the level of overhanging debt will be too great to make mortgage rescue a viable option. In these cases a local housing authority should Inform the homeowner as quickly as possible that rescue is not viable to manage expectation and minimise further anxiety Provide advice and assistance to he homeowner on other housing options 30

31 Notify money advice and the lender that rescue is not viable and ask that they review all other options Step 3 Involving money advice Involving money advice is vital in helping homeowners in mortgage difficulties and essential to demonstrate that the MRS is a viable option. Money advisors will work with homeowners to help prioritise debts, maximise income and if possible, achieve a solution which means that MRS is not required To enable the MRS assessment to be completed the money advisor will help the homeowner to produce a financial statement. The financial statement will identify whether the homeowner has a budget shortfall which means s/he cannot pay both essential payments and non priority creditors thus placing his/ her home at risk of repossession and will indicate that the MRS may be a solution. The financial statement should include: Details of the homeowner s income Priority expenditure (e.g. mortgage payments, utilities, council tax) Priority debts Other household living costs, including interim housing payments that can be made Evidence of income and expenditure and outstanding debts where available Details of realisable assets (including property and other valuable items) Unsecured debts Where money advice has identified that the MRS may be a solution they may also indicate which type of rescue (GMtR or shared equity loan) may be most appropriate, based on levels of equity and levels of income to pay either the shared equity loan or the rent 31

32 What should a local housing authority do? You SHOULD Refer homeowners who are in mortgage difficulties but have NOT received money advice to a reputable money advice agency operating in your area, using your money advice SLA. When making the referral provide the household with a Debt Pack to help them prepare for the money advice appointment Contact money advice direct and make a referral for money advice within the timescales agreed locally (Appendix 20 provides a sample referral form a local housing authority to use when referring homeowners for money advice) A debt pack may include: 1. A covering letter that includes homeowner s /client s details 2. A checklist of papers that the homeowner / client should take with them to the appointment 3. A money advice contract where used by the money advisor 4. A disclosure of information form 5. A homeowner s / client s profile form 6. An income and expenditure sheet 7. Budgetary guidelines (Appendix 21 provides a sample debt pack containing samples of 1-7 on the previous page) Remember money advice will be able to assess the urgency of the case and the degree of risk to the home from action by the lender. They will do this by filtering enquiries and making appointments based on the urgency of the case. Remember that not all homeowners will need or can access face-to-face appointments many homeowners who are working will prefer to receive most of the service by telephone and post with regular contact from the 32

33 money advisor. The money advice provider will be able to diagnose the most appropriate way of working with the homeowner. Where the homeowner has already accessed a national debt advice provider such as National Debt Line, CCCS, Community Legal Advice, Shelter and Payplan they will support the homeowner to produce the financial statement and associated evidence papers direct to the local housing authority for assessment. (Appendix 22 provides a copy of an up to date financial assessment drafted by money advice agencies) Why refer the homeowner to money advice? Money advice can resolve many issues with debt and budgeting and may be able to prevent repossession without the need for the MRS A local housing authority can only consider a household for the MRS if the household has an up to date financial assessment from money advice that shows they could afford to stay in their home with help from the MRS Based on the financial statement, money advice can advise the homeowner of the amount s/he can afford to pay each month towards his / her housing costs. This amount will form the basis of interim payments which the homeowner will be advised s/he will be expected to pay during the assessment process to demonstrate that mortgage rescue would be a sustainable option (Appendix 23 provides a sample confirmation of advice letter) Step 4 The MRS assessment Assessing homeowners against the MRS criteria When your authority has received a copy of the letter from the lender that confirms that the hardship options have been exhausted (criteria 1) AND has received a copy of a financial statement from money advice which confirms that MRS support would be affordable (criteria 2) you then need to consider stage 4. 33