Example Of Home Loan Arrears Process

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July 4, 2014

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A Home Loan Arrears Case Study

The following case study features a recent settlement of mortgage arrears on two investment properties, which were close to legal action (*1). The case involved pregnancy, and a loss of income as mitigating factors that were discussed with lenders. A line of credit had been established to cover both the mitigating factors. However, the line of credit ran out and clients referred their issues to a credit ombudsman. Through their negotiation process, the clients were able to make reduced payments on their home loan.

The ombudsman ruled against them for two of their three loans. The two dismissed lenders then requested full payment of the mortgage arrears. The account was deemed as being severely in arrears by approximately $55,000. This required a new lender to take on the debt. 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 was deemed satisfactory, the loan was then declined based on the arrears. These delays simply escalated the lenders’ collection activities – and this presented the clients with a pending eviction, and loss of future investment potential.

Our Home Loan Arrears Process

The clients called us in distress. They both now had the income to pay for the loans. However, they did not have the money to bring their mortgage arrears up to date. We assessed the potential to secure finance, and the prospects looked favourable. The properties were in good locations, their story was strong, so was their income, and the figures worked.

  • We established our authority on the loan accounts, and successfully (*2) negotiated extensions to avoid pending legal action (due in 2 days).
  • We assessed the available bad credit mortgages that could accept the mortgage arrears.
  • We provided the clients with a written proposal detailing the new lenders’ interest rate, fees and charges.
  • We obtained an application and ordered new valuations.
  • The lender approved the loan, subject to valuations.
  • Although the valuations came in low,we still had sufficient equity to settle, from avoiding the legal action (*1).
  • Settlement was effected at an initial interest rate of 5.2%, followed by 5.5% after 12 months.

Objective Analysis of the Home Loan Arrears Case

Mortgage arrears are among the credit issues that are based on the case’s story. Most of the work goes into assessing and obtaining supporting evidence to satisfy the new lenders’ approval guidelines. Other credit problems may be more straightforward. With home loan arrears, current payments tend to be lower than new loan repayments. This is where professional assessment can help obtain a satisfactory settlement result.Working closely with the client, we were able to make the whole process straightforward. The structuring of their loans and paper trail of their issues was methodically recorded. This led to a successful outcome that was largely the result of teamwork.

The Loansaver Network Can Help

Work with a professional who can help you answer questions about home loan arrears, and other forms of specialist finance. Contact the Loansaver Network today on 1300 796 850, to see how we can help you.

  • Legal action is an important milestone to avoid, due to their potential additional costs. Lenders charge different fees once an account goes to legal collections. This presents settlement issues if there are equity constraints.
  • Multiple extensions need to be obtained, as lenders want to recover their money as soon as possible. Deadlines are usually extended by one week at a time until a Formal Approval is achieved.