ERC on mortgages

[scoobydoo]

Full of questions I am today

I am reading of several cases where possession of properties have taken place and the final amount owing to the BS included the ERC in one case £8000 and in another £17000.

Now at first I thought fair enough mortgage is repaid within the term that the ERC applied . But then I did a bit of research and found an OLD work in progress document from the FSA where they talked about the reclaiming of the ERC in the case of repossession or death of the borrower as a possible UFTC especially if this is not mentioned in the KFI.

So I asked the FOS and FSA - guess what no reply!

Also I asked my own BS ( in the KFI it does not mention whether the charge is repayable on possession) - no reply!


Does anyone else have any thoughts on this ?

[Tools]

Re: ERC on mortgages

Do you have the old WIP document to post up scoobs?

Also for reference here is the FSA hand book on mortgage contracts http://fsahandbook.info/FSA/html/handbook/

and a post I made in 2007 from it regarding ERC's http://www.legalbeagles.info/forums/...ead.php?t=3005

[scoobydoo]

Re: ERC on mortgages

Actually it was the OFT sorry, and really old .

National Westminster Home Loans
1.19 On 28 October the Office issued a News Release announcing that National Westminster Home
Loans (part of Nat West Group) had agreed to make significant reduction in variable redemption
Unfair contract terms - case report bulletin 8 Page 6 December 1999
charges on its fixed rate home, following intervention by the Office under the Regulations. Some
borrowers previously face charges that the Director General described as ‘ruinously high’. On
existing fixed-rate mortgages Nat West agreed to cap redemption charges at no more than five per
cent of the sum redeemed where the original loan was for a period of five years or less. For loans
that had had a longer fixed rate, the cap would be seven per cent.
1.20 The bank also gave a written undertaking that it would not seek an early repayment charge (ERC)
at all in the event of death or repossession. Cases of hardship would be dealt with sympathetically
and on a case by case basis. In addition, the bank agreed that maximum redemption charges on all
new loan agreements would be clearly expressed in cash terms.
1.21 Nat West had offered long-term fixed rate loans at a time when interest rates were higher than at
present. The ERC was unusual in being variable and tied to movements in market rates. It rose
directly in line with each fall in the level of interest rates. Borrowers did not appreciate that if
their circumstances changed and they wished to redeem early, they could face very substantial
charges. Complaints to the Office indicated that the formula used by Nat West to calculate charge
was incomprehensible to most borrowers, and that consumers had not realised that their exposure
to rising charges was open-ended. Nothing in the paperwork prepared them for this possibility and
many faced charges of tens of thousands of pounds, especially on longer term loans. The lack of
transparency about a term with such potential to be extremely onerous was considered to be source
of unfairness under the Regulations in its own right.

Case

__________________
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Great thanks for that link.

That is really useful .

It also helps with posters that are being charged £50-£70 JUST for being in arrears .

I dont call that justified at ALL. Talk about kicking people when they are down.

They are paying £50.00 a month off arrears and at the same time their debt is increasing by the same amount. For a monthly letter that costs £2.50


I was not even aware that was happening.
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.

[Amethyst]

Re: ERC on mortgages

interesting scoobs

Natwest-1.20 The bank also gave a written undertaking that it would not seek an early repayment charge (ERC) at all in the event of death or repossession.


Are they still abiding by that undertaking do we know?

B 1(e) Penalty clause (financial) :

(e): variable charges imposed on consumers who redeemed their fixed rate mortgages early could be far greater than consumers had been given any reason to expect. Insufficient information was provided about the method of calculating the charges.


Revised so that the redemption charges are capped at 5% or 7% of the sum redeemed depending on the length of the loan. No redemption charge in the event of death or repossession Hardship cases to be reviewed on an individual basis Explanatory material made much clearer with maximum redemption charges expressed in cash terms n/a


Outcome reached: Informal Undertaking Obtained
Date effective: 28 October 1999

The Office of Fair Trading: National Westminster Home Loans

http://www.oft.gov.uk/advice_and_res...tcome1/363.doc

[scoobydoo]

Re: ERC on mortgages

No idea really,I have been trying to get answers but no luck from FOS or FSA.

unfortunately the recent cases where I have seen these large ERC payments being deducted are subprime lenders andI am not even sure if they are regulated.

I think really the only thing I can do is tell them to complain to the FOS on the basis that it might be an UFTC especially if not clear in the KFI - so I guess that means the poster doing an SAR on the old mortgage company?

[Amethyst]

Re: ERC on mortgages

Southern Pacific seem to do it. That natwest one doesnt say the term they removed so not sure really what am looking for in current contracts.

[scoobydoo]

Re: ERC on mortgages

I checked mine with YBS and it only seems to indicate if the mortgage is repaid on sale or re-mortgage - it does not mention re-possession or death, well not in the KFI.

If I was reading my terms now I would say they would not take the ERC in that situation - but when I asked them they did not reply which is very unusual as they are usually helpful.

[Emerald]

Re: ERC on mortgages

Mine is with Birmingham Midshires and it say's in the offer conditions it is waived on death. It doesn't mention repossession .

Also it is worth noting that Nat west changed all their conditions back in 1999 when on the basis of the those conditions someone took them to court and got their ERC back on UTCC - the mortgage contracts are now worded very differently. It is however something that should be campaigned about in repo cases as the ERC could mean the difference between a shortfall and potential bankruptcy and starting again with a clean slate.

[Amethyst]

Re: ERC on mortgages

Need to find out how often they get charged in repo cases to start with, see if there is a problem, and look at the mortgage contacts, and check position on sub primes.

I personally can see why ERCs would be added in the event of reposession, because basically the mortgage is being redeemed early. However a concern would be companies pushing through reposession earlier than need be to get in the ERC period, as well as the shortfall issues after reposession.

Be interesting to look at some cases.

[Happyolddog]

Re: ERC on mortgages

The Coventry BS has an ERC in its contract. I asked to see the manager if I was to pay my mortgage early how much would it incur. Her advice was to leave £10 outstanding and I would have no penalties.

[Emerald]

Re: ERC on mortgages

Need to find out how often they get charged in repo cases to start with, see if there is a problem, and look at the mortgage contacts, and check position on sub primes.

I personally can see why ERCs would be added in the event of reposession, because basically the mortgage is being redeemed early. However a concern would be companies pushing through reposession earlier than need be to get in the ERC period, as well as the shortfall issues after reposession.

Be interesting to look at some cases.

I can see why they charge it, but a huge ERC on forced sale could mean the difference between solvency and BR, hopefully with the new guidelines taking longer to repossess a lot of people will fall out of their tie in period. Course if they are planning BR anyhow they wont care.

The Coventry BS has an ERC in its contract. I asked to see the manager if I was to pay my mortgage early how much would it incur. Her advice was to leave £10 outstanding and I would have no penalties.

Thats OK if you have a flexible mortgage you can overpay, but on repossessions they wouldn't let you leave the £10 outstanding.

[scoobydoo]

Re: ERC on mortgages

I think its one of those clauses that should be made clear in the
KFI - so the wording should be if the mortgage is repaid for any reason within the period then the ERC is repayable. In my wording it says if the borrower repays the mortgage as I assume if a BS recalled the loan themselves or sold the loan on it would not be applicable.

Interesting that there has been a case under UFTC - I will have to hunt around. Unfortunately the cases I am seeing are all subprime lenders and they think they are above the law.

[argentarius]

Re: ERC on mortgages

I don't accept the argument that it would not generally be covered under the terms of a mortgage KFI.

Most mortgage conditions say something like this:

If the mortgage is repaid in whole, part or transferred to another scheme an early repayment charge of 1% of the balance repaid will apply until 30/04/2012

The redemption of a mortgage, whether by the borrower or by the lender repossessing the property, constitutes repayment of the mortgage.

It's interesting that it talks about the balance repaid - that might be read that, if there is a shortfall, it's only the net proceeds which are the repayment, not the full balance on the mortgage.

Quite apart from the wording of the mortgage contracts, there is clearly a fairness issue here as well. It is not fair that someone who redeems their mortgage without repossession should incur an ERC, whilst someone who is repossessed due to non-payment should not incur an ERC.

I would imagine that the number of cases where a repossession occurs a few days (or months) before an ERC period expires are rather few and far between, but the timing isn't realistically down to the lender. I cannot believe for a milli-second that any lender is thinking about ERCs which are about to expire, when deciding whether to push for repossession.

[scoobydoo]

Re: ERC on mortgages

Actually in my ERC the wording is if the borrower repays the mortgage before the ERC term finishes then XXX amount is repayable. To be fair I assumed the ERC would be repayable on possession until I saw about the bank being told to waive the fee in the case of death or possession.

If it is so cut and dry why is it that the FOS have refused to answer me - as have the FSA and my own BS?

[argentarius]

Re: ERC on mortgages

NatWest were told to waive their variable ERCs because they were seen as being particularly onerous, because their amount could increase hugely depending on the level of interest rates. They also applied to long-term fixed rates, inflating the potential size of the ERC.

NatWest did not give a global undertaking to waive ERCs on death or repossession, as I understand it.