Dealing with arrears – a collectors tale

Today’s post is by a guest writer who we cannot name, but we can tell you that this person works in the collections department of a major Irish lender, this person (or somebody like this person) is the one who will call you if you are in arrears on your mortgage. In this post we will reveal some of the inner workings of a collections official and the various things that they do as well as letting you know some of the unpublished things that you should do to protect yourself. Our guest writer has many years of experience in collections, during both the boom times and the downturn.

So now, over to our guest writer…..

There are a lot of buzzwords in the press at the moment and a few of them are regarding what to ask your lender for if you are in arrears. At this stage we have all been told that if you fall into arrears you should ask for payment breaks and interest only periods etc. However, simply asking does not guarantee that you will be granted these concessions. It can (but not always) depend on your payment history profile, personal details (age etc) down to loan/value ratio amongst other criteria. In this blog I’m going to look at a few of these buzzwords and explain how you can turn these suggested options into a reality.

Ask for a mortgage break or ‘Moratorium’.

At this point in time every lender in the country is inundated with requests for moratoriums. Some of these are genuine and some are opportunistic. While many people will only request a moratorium when they are advised to do so or are in genuine need of one, there is currently an element of borrowers who are demanding moratoriums based on their ideas that the banks ‘owe’ them; having been bailed out by the tax-payer.

The unfortunate aspect of this is that genuine cases can be swallowed up in a multitude of undeserving requests. For example, if you and your partner are both working but one of you has ‘taken a hit’ with the pension levy, this does not merit a moratorium, and yet I am asked for this daily.

However if you for example have lost your job and are genuinely in need of a moratorium you need to present your case in a way that will show this to the lender. Having worked with many mortgage brokers I can testify that a good mortgage broker will not lie about the facts of his case, however, they will present the case in the best possible light to the lender. Requesting a moratorium is no different. Here is how you should go about this.

Before agreeing to grant a moratorium your lender may ask for details of your current income and your outgoings. They may have a specific form for this or they may ask you to include these details in a letter. Be aware that if in a plea for sympathy you state that you are paying credit unions, credit cards, and personal loans this may sound good to you but will cause alarm bells to ring for your mortgage provider. You may well be struggling financially but they will instantly question why are you paying €200 per month to a Visa Card, €200 per month to the credit union and €400 per month to a car-loan when you have not paid a penny to your €800 mortgage in the last 3months.

If this is actually the case forget the moratorium and reassess your priorities. The credit card company can do no more than cancel a piece of glorified plastic. Your mortgage is secured on your family home. Your lender will point this out to you and suggest that perhaps you are asking the wrong lender for a payment break. That being said, do let your lender know that you have other creditors. Include statements and or demand letters from the other institutions.

Be honest with all incomes. If you mention you are spending x amount on food and groceries because you have 3 young kids, then your lender will know that you are in receipt of child benefit for each of your children. Do not be afraid to be honest. Your lender will have more sympathy for a request from a customer who is not seen to be trying to pull the wool over their eyes, and I mean that from a collections point of view, if somebody is jerking me around I’ll return the favour.

There are two types of moratoriums. Full moratoriums and interest-only moratoriums. Full moratoriums provide you with a complete break in payments for a period and interest only moratoriums allow you to only pay the interest for a period of time. In your request you should always ask for a full moratorium. Your lender may only grant you an interest-only moratorium but if you only ask for this from the outset, then this is all you will get.

If you are refused a moratorium do not be afraid to ask again. Ask them on what basis was it refused. You may be able to clear up some details and subsequently have it approved, ask again and if needed, ask again and again. However, do not be aggressive – it will not endear you to the person on the other end of the phone and it will make them less sympathetic to your case.

If you are still being denied the option of a payment break, you can try bargaining with them. Offer an agreement that if they give you interest-only for 3 months then you will pay above the interest at an agreed amount so that while on interest only, you will still be bringing down the arrears. Likewise you can offer that if they give you a full moratorium you will pay an agreed amount during the moratorium to bring down the arrears. The lender may be persuaded by this, as not only will you be given a much needed breathing space, but the existing arrears will be lowered during the break even if only slightly.

Finally do Not repeatedly ask for a MONO-torium. It won’t in any way affect your eligibility for being granted a moratorium, but it will make the arrears officer want to bite his or her tongue which may affect their ability to properly annunciate the further options available to you!……Ok that last point may not be relevant to most cases but this arrears controller could not bring himself to omit that comment from this blog!

Extend your term

If you are struggling to meet your monthly instalment a good option is to ask your lender for is a term extension. This will increase the time you have to pay off the balance of the loan and as a result will decrease your monthly repayments. Lenders will comply with this proposal provided you meet certain criteria. However they may be reluctant if you have not been paying at all recently..

If you haven’t been paying at all in the last few months there are ways in which you can assure your lender that you will maintain future payments if the extension is granted. Offer to pay the proposed new repayment for a couple of months as a show of good faith. They will then have proof that you are serious about maintaining this new monthly repayment and they should then be happy to extend your term. If you have proven you can pay the new amount by making 2 or 3 of these repayments then they would have no reason not to extend it. If they refuse, make the point that you will be complaining to the regulator that they are not playing ball as you have proven you can meet the new repayments and then they are not allowing you to do so. Bear in mind however, that there are some constraints on what can be done.

Do not demand that your mortgage provider extends your term beyond the limits of human longevity. The lender will not increase the term of a mortgage by 20 years where the borrower is already 65 at the end of the current term. There is a very good reason for this. Life companies get a little scared when asked to cover large sums of money against the (un?)likely death of someone who was likely begotten during biblical times. Unless waived due to certain circumstances, a Life Policy must be in place on a home-loan and so the lender will require you to increase your life policy before they extend your term. Check with your life company that they would be willing to extend the policy at a reasonable price. If you have a reasonable quote from your life company before you approach your lender to consent to an extension, this can only make your proposal stronger.

If you have failed to secure an affordable life policy covering the proposed new term, ask your lender will they waive life cover for the last 5 or 10 years depending on how long you were extending it for. One again, do not be afraid to ask. Not all options are advertised but that does not mean they are not available in certain cases.

Ask for a rate review.

Find out what interest rate you are on. Are you on the standard rate? Banks will not voluntarily drop your rate if you are on a higher than average rate. Once again, if you don’t ask you wont get. It may be that you are already on a standard rate and therefore wont be offered any better than what you already have but sometimes rates can simply be wrong. Perhaps there is an unreasonable loading on your account. Again, asking will do no harm.

Are you on a fixed rate which is making your repayments unmanageable? Find out what the charge would be to break from this fixed rate. Ask  them to work out for you what your new repayment would be if they were to take this fee and add it onto the balance of the loan. If the breaking fee added to the balance of the mortgage does not amount to much of an increase in monthly repayments and on the other hand, the difference in the rate would bring about a significant drop in monthly repayments then this is certainly something you should consider doing.

Sure, the breaking fee being added to your balance may mean increasing the loan to the tune of perhaps a couple of thousand or more but the interest saved with your lower interest rate may actually save you money overall and simultaneously make your repayments more manageable, and don’t forget – in the long term you obviously want to recover, this is a ‘here and now’ solution.

Ask to have your arrears capitalised

So you’ve been in arrears for almost a year now. You have looked into all the options from monomoratoriums and rate reviews. You have extended your term. You can now just about make your monthly repayments but you just cant seem to bring the level of those arrears down. How do you stop worrying when you can meet your repayments but those 5 months you missed are just sitting there like worry-goblins on your shoulders.

Perhaps you are slowly clearing the arrears with the odd payment here and there but seeing as the balance is only reducing by 100 each month you feel like its taking forever and you are eager to have this off your back. You should realise that the bank does not want to have its customers in arrears. They are being monitored very closely and want the arrears book to be shrinking rather than growing or remaining unchanged.

Make an offer to the bank that if you maintain the monthly repayments for a few more months, that they might agree to capitalise the remaining arrears? If you had arrears of €7000, and you were only paying €100 per month off the arrears, this would take just under 6 years to bring your account back up to date. If they agree to capitalise your arrears after you make 6 full instalments then you are clear of arrears in 6 months. Six months or six years. This is clearly a no brainer for both lender and borrower.

The bank may not make it public knowledge that they will do this but you may find on asking that they are only too happy to do so. They know that you will have the incentive to ensure future payments are made on time and they get the bonus of decreasing the arrears figures on their books. It’s important to note that they may very likely only agree to this on a once off basis so remember your motto, you have only one life; use it wisely. Don’t presume you can make a habit of missing a few months over each xmas period and then proceed to have them capitalised by summer. The lender is genuinely helping you here, don’t try and take advantage of it, or it wont be entertained and you are only ruining it for other people, if management find out that this isn’t being handled well then future borrowers in trouble won’t be offered it.

And Finally………. If worst comes to the worst

Banks keep a file of all documents received and sent on your account. Ensure that you do the same. If things come to the worst in an arrears situation and your case comes before a judge, it would greatly benefit you if you have a complete documented record of having asked for moratoriums or interest only periods. It will benefit you that you have a record of having offered certain proposals. If none of the above options have been entertained and the lender can be proven to having not helped you in anyway reasonable then the court will be swayed more in your favour. Keep a record of all correspondence and don’t forget that when it comes to getting lenders to grant concessions, ‘No’ does not always mean ‘No’. Be firm but be polite, if you are reasonable and honest they will normally do what they can to help. Just remember, if you are granted a concession you should do your best to stick to your part of the agreement. Cooperation works both ways.

Good look with managing your arrears and remember; don’t be afraid to ask for concessions. After all, the bankers have not been afraid to go cap in hand and you are only seeking a solution that will benefit everyone.

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