Interest Only mortgages - double recovery?

[iconoclash]

Hi - been trying to work this out in my head but wonder if anyone has any ideas about this situation of mine, thanks.

 

I have an interest only mortgage

- the arrears I previously had were shown on the statements and increased the outstanding balance, which I understand.

 

The new balance then attracted more interest.

 

Later the lender took me to court and had the arrears added to the security, increasing the balance again.

 

Shortly after that they capitalised the arrears - so - assume the balance went up again.

 

Also added all their legal fees.

 

Does this mean that there has been a double recovery of interest then?

[gemspan]

Hi there

 

I have been doing the same thing re interest only mortgage!

 

Essentially when you pay an interest only mortgage...that is all that you are paying so a missed mortgage payment is a missed interest payment. The missed interest payment is then added to the total balance of the mortgage....and you will pay a mortgage payment on the whole amount....not just the amount of your original mortgage. Throughout the mortgage term you are always only paying interest on the whole sum outstanding and the principal sum is due at the end of hte mortgage ie the original sum that you borrowed.

 

If you default on any interest payments during the term of the mortgage the missed payment gets absorbed into the whole interest payments so, effectively, you are not in arrears at all...because you contracted to pay only interest and you are paying interest on the entire sum ie original mortgage plus the outstanding interest payments. In addition, they add any charges to the original mortgage sum and you will also be paying interest on the charges...which....over a 25 year term...amounts to a hell of a lot of money.

 

When I fell into arrears with my mortgage I asked if the sum could be capitalised and the mortgage company refused. The excuse I was given was that they didn't want to place me in more debt...what they didn't say is that if they did capitalise the sum my mortgage interest payment wouldn't change a penny...because I was already paying interest on the arrears, plus £40 charges which are applies if your account is in arrears and you don't pay by direct debit.

 

It's not in their best interests to just agree to capitalisation because they lose all that extra money they are charging you. if they capitalised then they couldn't charge the £40 per month charge nor chase you for any amounts in arrears...which effectively are non-existent as you are paying the whole interest on the mortgage and arrears..and it is an interest only mortgage with the balance being paid at the end of the term.

 

I can't understand why this hasn't been highlighted before....you are right to question it...I am and I think they will be refused a possession on the fact that I am already paying the mortgage interest on the entire amount...and my mortgage is interest only with the actual balance being paid at the end of it.

 

It's a [problem]..they get you all ways but a lot of this stuff must be illegal but nobody has queried it.

 

Regards

Gemspan

[gemspan]

You have always been paying the interest on the arrears.

..the fact that they have capitalised will not change your mortgage payment

because you are paying interest on that already and a higher sum will become payable at the end of the term.

 

 

What you are now paying is an extra amount per month for the legal fees.

..which will also be payable at the end of the mortgage.

 

 

Effectively your legal fees will cost you a whole lot more than the original sum. It's disgusting.

[iconoclash]

HI -thanks, glad to find their are like minded out there - lol. I have been throwing this around in my head for awhile and will try to find some relevant law on double recovery of interest - this might have implications with tax for the lender and I'm pretty sure contract law is the best place to start.

[gemspan]

In my opinion, an interest only mortgage can never be in arrears because,

while you may have missed an interest payment,

the payment gets added to the interest accruing and is paid over the remainder of the term.

 

 

The actual mortgage advance does not become payable until the end of the mortgage term

and therefore if lenders refuse to "capitalise" like mine did because they don't want to give people a higher burden of debt..

..they are simply showing that their intention is to repossess..

..because whether they added the assumed amount of arrears to the mortgage interest sum

is neither here nor there...you are paying for it anyway....

 

I can understand why anybody hasn't picked up on this disgusting behaviour before.

I also wonder how many people have lost their homes when they have had interest only mortgages.

A complaint needs to be put into the FOS or OFT.

 

Can somebody with experience please help us.

I have placed a few posts over the last few months that have gone unanswered.

..one when I really needed help.

[MARTIN3030]

Yes this is something that has been reported in the media in recent months.

There was one in the Mail back in April

 

http://www.dailymail.co.uk/news/article-2131192/Interest-mortgages-How-million-Britons-sitting-time-bomb.html

[MARTIN3030]

The FSA also announced in May that there were no plans to ban IOMs

 

http://www.ftadviser.com/2012/05/24/mortgages/mortgage-data/fsa-mmr-will-not-ban-interest-only-mortgages-MG2DqjTV06dg1djJWQGeyK/article.html

[MARTIN3030]

The FSA,however,have taken actions agains some firms and individuals who were found to be guilty of selling ancilliary products that were linked to IOMs.

 

http://www.moneymarketing.co.uk/regulation/ban-over-high-charge-plan-backing-interest-only-loan/1053277.article

[iconoclash]

Hi - yes been searching around and I cannot find anything relating to this within the MCOB but it would seem that contract law restricts double recovery and a mortgage is a contract. I have put the question to the FSA and will let you know what they answer.

[iconoclash]

Hi - I found this:

"The liberty of choosing (or the act of choosing) one out of several means afforded by law for the redress of an injury, or one out of several available Forms of Action. An election of remedies arises when one having two coexistent but inconsistent remedies chooses to exercise one, in which event she or he loses the right to thereafter exercise the other. Doctrine provides that if two or more remedies exist that are repugnant and inconsistent with one another, a party will be bound if he or she has chosen one of them."

and this:

"election of remedies n. an outmoded requirement that if a plaintiff (party filing suit) asks for two remedies based on legal theories which are inconsistent (a judge can grant only one or the other), the plaintiff must decide which one is the most provable and which one he/she really wants to pursue, usually just before the trial begins, thus putting a possibly unfair burden on the plaintiff. Example: suing someone for both breach of contract and for fraud (a secret plan not to fulfill the contract when it was made.) Fraud might bring punitive damages, but proof of fraud might be more difficult than it would be for breach of contract. Increasingly, the courts have dispensed with the election of remedies as unfair until the evidence is fully presented."

 

which I'm reading as two remedies being used by lender for consumers being in arrears.....

Edited July 12, 2012 by iconoclash
edit

[gemspan]

Thank you Martin3030...this is very interesting and of real interest to me because my mortgage provider is trying to repossess my home....when I have been paying the interest only mortgage payments and the terms and conditions were English T&Cs and not Scottish. It is in the hands of my solicitor at the moment. I will add this way of thinking. Campari2 I would be interested to hear your take on this too. Thank you x

[iconoclash]

Hi - update on this, I have managed to get back the extra legal costs that were added to my balance erroneously. I am now tackling my current mortgage servicing company who have had the whole balance on their books and charged me interest on the lot for years - trying to reverse the interest charges. Also, thinking about the double recovery issue: say I had a mortgage of £100k with £5k in arrears, I am charged interest on both sums in real time, the £5k is capitalised, so doesnt this mean they lend me another 5k to clear the arrears sum making me mortgage balance higher and then charge interest on that balance?

[andrew1]

Can I just throw in a wobbly here?

 

If 5k is capitalised what exactly has happened?

 

Have they effectively given you a further advance of 5k and if so, should that not be treated as new money lent to you and treated as a CCA regulated loan?

 

Just thought I'd throw it in for discussion.

 

Also, is there any question of Interest Only loans/mortgages being a 'mis sold' product if the mortgage company did not ensure one had the safety net in place (i.e.Endownment policy) to clear off the capital at the end of the term? To not do so would, In my opinion, be reckless lending.

 

Food for thought.

 

A1

[iconoclash]

Can I just throw in a wobbly here?

 

If 5k is capitalised what exactly has happened?

 

Have they effectively given you a further advance of 5k and if so, should that not be treated as new money lent to you and treated as a CCA regulated loan?

 

Just thought I'd throw it in for discussion.

 

Also, is there any question of Interest Only loans/mortgages being a 'mis sold' product if the mortgage company did not ensure one had the safety net in place (i.e.Endownment policy) to clear off the capital at the end of the term? To not do so would, In my opinion, be reckless lending.

 

Food for thought.

 

A1

HI - that is what I am trying to understand. The mortgage pre-action protocol suggests various alternatives to reposession, one of which is to capitalise any outstanding arrears. My lender capitalised the arrears and added them "to the security" which increased my outstanding balance by about £4.5k. I understand all that but as this is an interest only product, and it seems to me that the arrears form part of the total mortgage sum due and attract interest and fees, which the lender has confirmed. The lender then adds that sum to the capital outstanding and charges interest again, so although it has moved from one column to another so-to-speak, there has been a double recovery surely? and if so, double recovery is strictly unlawful.

thanks

P.S. yes, this is to my mind a mis-sold product but that is a whole other can of worms

Edited May 30, 2013 by iconoclash
extra info

[andrew1]

campari2, why not ask the question to the lender? The answer to this has wider ramifications as you might imagine.

 

There is a certain proviso with regards to consenting to the capitalisiation, if they suggested it then the door is open...

 

The Question:

 

As you have capitalised the arrears and effectively increased my borrowing by £4,500, can you advise me why this is not treated as a CCA regulated loan?

 

Now there may be conditions on your deeds which allow for further advances, but this is effectively new money, a new loan although it may be linked to your borrowing from the initial mortgage, it has now become a new loan I believe - I may be wrong and often am, but it's a question worthy of asking. I have on a 1989 further advance of 10k on the day I took out my mortgage and they are struggling like hell to come up with an answer....If I'm right, then everything they did since that date was wrong....tick tock.

 

I believe you are correct on the interest double recovery, but I'm no expert and there are wiser heads on here who might be able to confirm that for you.

 

Hope that helps? let us know how you get on...

 

A1

[iconoclash]

hi and thanks, I think there is something in the deed allowing this and I did sign acceptance and I cannot ask the lender as they have sold it on again and refuse to discuss anything with me as I have tried and tried to resolve, and the FOS didn't understand it either so might be forced into another court action, will let you know how things progress

[andrew1]

and I did sign acceptance a

 

..but who suggested it, that's the question.

[andrew1]

Hi campari, I know this was a while ago, but did you get any further with your questioning or investigations?

 

I never got my answer to the 10k further advance question with the bank over who regulated it. I sold-up and paid them off and still they won't answer which tells you something doesn't it?

 

My brother-in-law on the other hand took out a mortgage many years ago and due to trouble paying the monthly installments was recommended 15yrs ago to change to an Interest only mortgage by his bank.

 

The bank never ensured he had any kind of endowment cover and he's now 69 years of age and having to work to keep the roof over his head. The capital is still owing and at £90k+/- he'll have to sell to repay it. It's breaking their hearts the thought of it, but I believe the interest only to be mis-sold.

 

Be nice to know what others think about the misselling and what remedies might be available...anyone been to court to argue this or successfully claimed from their bank?

 

I'd be interested to hear how you've faired in establishing what became of the capitalised amounts in your particular case too....this might be of interest to you too....bit of a long read, but pursuasive..

 

http://www.courtsni.gov.uk/en-GB/Judicial%20Decisions/PublishedByYear/Documents/2014/%5B2014%5D%20NIMaster%2011/j_j_2014NIMaster11Final.htm

 

A1

[caro]

Interesting case A1.

[andrew1]

Interesting case A1.

 

Would you expect anything different from me young lady?

[caro]

Would you expect anything different from me young lady?

 

Of course not young man!

[iconoclash]

Hi A1, been awhile. This question about double recovery and charging styles remains unanswered, particularly by the regulatory bodies, that is not to say though that these issues have gone away. I think the case with Bank of Scotland is very interesting and useful and only strengthens our aims.

My own mortgage product has been sold on yet again since we last communicated, and interestingly, the new servicer states that they have changed the way interest is calculated on any additional interest outstanding on the account,..... that interest will no longer be calculated on the balance of outstanding additional interest, but daily interest will continue to be applied on any outstanding arrears.

Now, that sounds like an admission that interest is, and has been charged, on interest.

 

 

I responded to this and asked if therefore, they would rework the previous interest charges too and they said no and did not explain themselves further. The whole problem remains, and they refuse to disclose what prompted this change, which I suspect is related to investigations and changes coming. What say you??

[andrew1]

Hi campari,

 

That's interesting too. Might I suggest (I just love asking others to do the donkey work! lol) a letter to the old lender pointing out the changes this new lender have made and what they are doing and ask why this didn't appear to happen on the mortgage when in their custody and ask what their comments as to why they haven't done the same are?

 

Word it carefully so they don't just come back and say something akin to " we have no control over what other lenders do" and point them towards regulator issues perhaps. These guys don't do these things for the good of their health, they do it because they have been forced to do it so there's always a reason.

 

On my part, I've had various Further Advances to my 1st mtg some of which were interest only - I have to go digging even deeper than I have - the bank are fed up with me and my questions already, this'll just take the biscuit

 

In your case, if the mtg has been sold on then there must be some kind of agreement between them and the old lender as to the manner in which the original terms are applied, I'd dig into the details of the terms of your mtg and freshen up your thoughts accordingly....that's what I'd do anyway until it was crystal clear.

 

I've found that facts argue my case in most of my dealings with banks and finance companies, plain facts and documented evidence - that always stumps them.

 

By the way, if they capitalise the balance then there are no arrears as you've argued earlier and as the BOS case explains....goes need some serious thought with the grey matter doesn't it?

 

Be interested to hear how you get on and if I find anything further I'll let you know.

 

Thanks

 

A1

[iconoclash]

Hi, a new one on me:..

 

 

. a company is 'running' my regulated mortgage;

they write me letters,

threaten me,

harass me,

take me into court in their own name,

add their name to my mortgage deed,

BUT, remain Unregulated themselves having purchased my mortgage.

 

The position of the FCA is that they do NOT need to be regulated as they are working for another party who IS regulated.

Hmmm - does that sound OK??

seems not

 

 

it also appears that there are NO regulations about this in the UK

where there are regs in the USA.

 

 

Does anyone have any thoughts around this

whether I should simply ignore this outfit and only deal with the actual servicing company hiding behind them

because the more I deal with them

the more I see that there is nowhere to go with any dispute I have with them.

 

 

thanks

[iconoclash]

Further information found that the FOS should be adhering to:

 

© Protecting borrowers when mortgages are sold on

 

22.

 

The CML supports the Treasury’s proposal and definition of “managing” a regulated mortgage contract.

We believe that the purchase of mortgage books by unregulated entities does have the potential to cause detriment to their borrowers,

which requires a regulatory intervention and extension of FSA scope.

 

23.

 

However, it should only apply where those purchasers of mortgage assets can have a material impact on the consumer

through day-to-day decisions on the interest rate, other charges, service levels and arrears and possession management.

 

 

Alternatively, where purchasers have waived or delegated to their servicer or administrator the power to exercise these rights

they should not be subject to regulation where the servicer is regulated for these purposes instead.

 

24.

 

The principle that only one firm should be regulated as “manager” is paramount.

 

25.

 

Moreover, legal advice should be sought to seek reassurance that the regulatory change to the statutory definition

does not adversely impact on existing funding structures that require mortgages to be sold to a separate legal entity

such as a special purpose vehicle (SPV) in the case of securitisation

and limited liability partnership (LLP) in the case of covered bond transactions.