State response to mortgage arrears crisis is inadequate, says FLAC

19 December 2008

FLAC (Free Legal Advice Centres) today expressed its disappointment at the government response to the mortgage arrears crisis outlined in its frameworkdocument for building economic renewal published yesterday (18 December).

In the wake of a press release from the Financial Regulator this week, outlining its examination of procedures for handling arrears and repossessions, FLAC Director General, Noeline Blackwell, commented that "both the government and the Regulator have underestimated the extent of the problem.

"The government states that it is fully committed to protecting those at risk but will rely upon the industry to police itself through its voluntary code on mortgage arrears. The Regulator states that if you engage with your lender, it is unlikely that your house will be repossessed, then it produces figures on repossession that are already six months out of date."

On the figures produced by both the government and the Regulator, the legal rights body notes that only the number of repossessions by court order is quoted, not the number of applications for repossession. "It is no secret that sub-prime lenders in particular have flooded the High Court with applications for repossession over the past 12 months. How many of these applications have resulted in the sale or loss of the family home prior to any order being granted? Where was the voluntary code for those borrowers?" Ms Blackwell asked.

FLAC reiterated its call for a moratorium on repossession cases being brought against borrowers in arrears because of an adverse change in financial circumstances. "It is unfortunately clear that more mortgage holders will fall into serious trouble in the course of 2009. It is therefore simply not good enough for the government to commit itself to 'carefully monitor practices in relation to mortgage arrears'," Ms Blackwell continued.

Noting the government's commitment to continue to fund the Money Advice and Budgeting Service (MABS) at a similar level for 2009, FLAC suggested that an increase in funding was required. "MABS is a service under immense pressure with a major increase in client numbers evident in 2008. Waiting lists have started to develop in many services. People in debt need help fast," Ms Blackwell said.