Example Of Home Loan Arrears Process

Payment Plans with the ATO
July 4, 2014

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How did this home loan arrears begin?

This case study of a recent settlement is one that is not unusual, however is an interesting one. This mortgage arrears was on 2 investment properties that were close to legal action(*1). There were some mitigating factors as with all mortgage arrears which included a pregnancy, however the loss on income was carefully planned for by the clients and discussed with the various lenders to ensure they had the most conducive and effective management of their loans. They thought they would be fine. A line of credit had been established (in consultation with the lenders/broker) to cover the loss of income and costs associated to the pregnancy. Well, down the track the line of credit ran out and the clients referred the issues they were suffering to the credit ombudsman. Throughout the negotiation process they were approved to make reduced payments on their home loans, which they did.

In the end the ombudsman ruled against them for 2 of their 3 loans. The two (dismissed) lenders then requested full payment of the mortgage arrears. The account was deemed as being severely in arrears by approx. $55,000 which required a new lender to take the whole debt on. The remaining lender was ruled against and ordered to pay back $16,000 to the loan account.

A loan application was originally put to an online home loan lender (name withheld), after the loan was verbally approved. Once the valuation came back as satisfactory the loan was then declined based on the arrears. So, you can imagine these delays simply escalate the exiting lenders collection activities, which means a pending eviction and the clients loss of future investment potential.

Home Loan Arrears – Our Process

We received a call from the clients in distress and upset how the whole process was managed by the various lenders. They were both now working and they had the income to pay for all the loans, however they didn’t have the money to bring the (deemed) mortgage arrears up to date. We assessed the potential to secure finance and the prospects looked good. The properties were in good locations, the story was strong, the income very good, and all the figures worked.

  • Our first job was to establish our authority on the loan accounts and negotiate extensions to avoid the pending legal action (due in 2 days) which we were successful (*2).
  • Next job was to assess the available bad credit mortgages that could accept the mortgage arrears.
  • Provide the clients a written proposal detailing the new lenders interest rate, fees and charges.
  • Obtain an application and order new valuations.
  • Lender approved the loan subject to valuations.
  • Valuations came in a low however as we avoided the legal action(*1) there was still sufficient equity to settle.
  • Settlement was effected at a great bad credit interest rate of a 5.2% initial rate, then 5.5% after 12 months.

Home Loan Arrears – Objective analysis

Mortgage Arrears is one of those credit issues that is heavily based on the story. Most of the work and expertise in assessing, questioning and obtaining supporting evidence to satisfy the new lenders approval guidelines. Other forms of credit problems can be more straight forward as with debt consolidation, or even tax debt as the benefits to the client can be more readily assessed by looking at the current payments vs the future payments. With home loan arrears the current payments are usually lower than the new loan repayment ie. Why would a lender increase the payments when the current ones are in default? This is where professional assessment and delivery of the solution is required to obtain a satisfactory settlement result.

These clients made the whole process very straight forward and we worked very closely as a team. The structuring of there loans and paper trail of their issues was methodically recorded. The successful result was a combination of team work which is always required.

If you have any questions about a home loan arrears (or other forms of specialist finance) contact Loan Saver Network on 1300 796 850.

*1. Legal action is an important mile stone that we try to avoid mainly for the affect of additional costs. Each lender has different fees charged once an account goes to legal collections with some quoting $400 and others could be in the thousands which can present settlement issues if there are equity constraints.

*2. Multiple extensions need to be obtained as the lenders want to recover their monies as soon as possible – usually they will only extend deadline by one week at a time until a Formal Approval is achieved.