Mortgage Stress

1. Mortgage Stress SA Financial Counselling Conference Consumer Credit Legal Centre (NSW) Inc 26 September 2011 This presentation is for information only. You must seek legal advice in relation to any particular circumstances.

2. Consumer Credit Legal Centre (NSW)

4. What we do at CCLC? • The Credit and Debt Hotline service is available to financial counsellors in South Australia, Northern Territory and Tasmania on a trial basis. • We advise consumers and financial counsellors on Mortgage hardship, Debt collection, Legal proceedings, Dispute resolution options including referring disputes to the Financial and Credit Ombudsman Services

5. How to get advice Credit and Debt Hotline 1800 650 084 Monday to Friday 9.30am-4.30pm If you are calling on behalf of your client, please ensure your client gives you permission to give their name and seek advice on their behalf. Please also have ready the names of all third parties.

6. Overview • Mortgages – repossession procedure • EDR • What can you do? • Financial hardship rights • Financial hardship checklist • When the Credit Law does not apply • Settlement agreement checklist

7. Mortgagee repossession • There is a mortgage (over the client’s home)AND • The client has "defaulted" on the loan agreement (for example, failed to make repayments failed to keep your home (building) insured etc.)AND • There has been a notice under the Real property legislation (if required) AND

8. Cont. AND, • The client has been sent a Default Notice by the lender under the National Credit Code and given 30 days to fix the problem and did not fix the problem within that time. This notice will include an acceleration clause. This means that after the 30 days has lapsed and the arrears are still outstanding, the entire loan becomes payable. This notice can be sent by ordinary post and needs to be in the specified form AND (in most cases) • A Statement of Claim or Summons has been sent or served on your client

9. Cont. • The client does not have a defence/does not file a defence. AND • Judgment is entered and a writ for possession is issued.

10. Case study 1 Bob comes to see you. He is very upset. He says he has just found a summons stuck under his door. He tells you that the bank has taken legal action against him. to get his home. 1. What do you need to know? 2. What do you need to do?

11. When to go to External Dispute Resolution (EDR) • Client’s request for financial hardship rejected • Default notice expired or due to expire • Legal action threatened • Statement of Claim/Summons issued but no judgment • Lodge in EDR immediately; on-line best • Follow up with EDR to ensure client’s dispute is in EDR system

12. What can you do? Questions to ask • Is this just a temporary problem? • Is this long term – will they ever be able to make payments? Question Could the client ever afford the repayments? Get advice – possible unjustness!

13. Priorities The home loan is the highest priority debt because: • Don’t pay - risk losing home • Largest debt so compounds fast • Not paying a large debt is hard to recover from after a moratorium • Easier to make repayment arrangements on smaller debts

14. Direct debits • Cancel the direct debit • Find other ways to pay • Contact EDR for details if required • Lodge in EDR if direct debit not cancelled when requested • See www.cclcnsw.org.au for sample letters to cancel a direct debit

15. Financial hardship • Financial hardship is any difficulty making repayments • Does not matter what reason • No threshold • Should be mentioned straightaway in letters and phone calls “the magic words” • Small business • The only restrictions that apply are if you want to enforce in Court or EDR

16. Financial hardship • Hardship variations under s72 of the National Consumer Credit Protection Act (‘National Credit Code’) are available when: • the National Credit Code applies • the debtor is in hardship i.e. illness, unemployment or other reasonable cause • FOR EDR – hardship threshold is amount of variation not amount of loan • FOR COURT: the loan is under hardship threshold. For loans entered into after 1 July 2010 the threshold will be $500,000 but will not be retrospectively applied.   • Refer to www.creditcode.gov.aufor thresholds prior to 1 July 2010 • the debtor must show that if the variation is granted they will be able to repay their loan within a reasonable time.

17. Meaning of Illness, Unemployment, Other Reasonable Cause • Illness is any illness, physical or mental • Unemployment can be loss of all or some income • Other reasonable cause: can be interpreted widely eg. family breakdown, business failure, caring for an ill relative, funeral expenses • These factors must have caused the consumer’s financial hardship

18. Financial hardship rights • The right to apply for financial hardship • Requiring the lender to respond to the application in writing within 21 days stating: a. Whether the lender agrees to the change; b. If the lender does not agree to the change notifying you of: • i. the contact details of the relevant free dispute resolution scheme • ii. your right to go to a dispute resolution scheme; and • iii. the lender’s reasons for refusing the hardship application.

19. Financial hardship rights 3. If the lender agrees to the repayment arrangement it must give you a notice in writing within 30 days after the agreement is made stating the particulars of the change. 4. If the lender does not agree to the application for change then the client can apply to a dispute resolution scheme for the requested change. 5. If unsuccessful in the dispute resolution scheme then client still has the option of going to court (if they meet the requirements under s.72 of NCC).

20. Asking for Hardship checklist • File note the conversation • Ask to be transferred to the financial hardship team (if there is one). • Tell the lender your client is in financial hardship. • Tell the lender what your client can afford to pay • Ask for a term for reduced repayments. • Ask to add the arrears to the loan with the term of the loan extended. • Ask how much the repayments will be at the end of the variation.

21. Asking for hardship checklist • Request that all legal action, default fees and default interest stop while the lender considers your request. • Request that the lender not list a default on your client’s credit report. • Ask the lender to agree to the above request. • Do not agree to repayment arrangements that the client cannot afford!

22. Case Study No 2 • Bill and Jenny Jones have had joint home loan with BIG BANK since 2001 • Loan balance is $450,000; monthly payments $2,500 • Bill made redundant recently; has missed two mortgage payments • Jenny works part time ; they have three young children Questions • What information would you seek from clients ? • What options may be available to them ?

23. Case Study No 3 • Sam and Sasha have a joint home loan for $350,000 • Sasha has left the marriage and gone to live in Peru with a new love interest • Sam has been left with the mortgage and now can afford the repayments but due to the family breakdown has $10,500 Questions • What information would you seek from Sam • What options may be available to Sam?

24. EDR and Financial Hardship • EDR schemes can make determinations on financial hardship under the Credit Law • A few hints when going to EDR • Make sure you lodge online • Client may have to complete statement of financial position to show repayment is affordable, reasonable • Don’t agree to any arrangement that client can’t afford • Client should keep making regular repayments • Always lodge dispute in writing • Get legal advice if legal action taken • Get agreement on arrears and arrangement after hardship variation ends

25. Settlement Checklist • An agreed repayment arrangement • Does the repayment arrangement need to be reviewed? Remember: the client cannot continue to be extended indefinitely. • What happens at the end of the reduced repayment arrangement? • Client’s credit report.

26. Settlement checklist cont. • Legal costs and default fees refunded? • Statement of Claim/Summons discontinued if a Statement of Claim/Summons has been served

27. What if Credit Law does not Apply? • Three Codes of Practice available (see CLT S3,P49 • Code of Banking Practice (most banks) • Mutual Banking code of Practice (building socs & credit unions ) • Mortgage & Finance Association of Aust (MFAA) • Credit providers have obligation to consider financial hardship requests under these codes • Go to EDR if they don’t comply with their obligations

28. Super and Mortgage Assistance Client may want to access super or apply for Mortgage Assistance while on hardship: Always continue with hardship arrangement negotiations do not reply on superannuation or mortgage assistance • But pointless if likely to lose their home in future • Early release of super via APRA (www.apra.gov.au)

29. Financial Hardship : Q&A • What would you propose to client if....? • Credit provider will not agree to hardship variation • Loan is above the hardship threshold • Client has multiple debts • Client has received a Statement of Claim from the court • It is business loan

30. Case Study No 4 • Tom is a postal worker in late 40’s; same employer 20 years • His debts incl. home loan of $195,000, monthly payments of $1,850 • He has had a bad stroke, is on sick leave and may not be able to work again • Other debts include car loan of $19,000 and credit cards of $21,000 Questions • What information would you seek from Tom? • What options may be available to Tom?