Anyone involved with the post completion mortgage administration process will be acutely aware of the pressures to show ‘forbearance’ to borrowers who are facing difficult times. However, many involved in the industry will have been surprised at the level of ‘forbearance’ being applied by lenders.
Data collated by the FSA and contained within the recent Bank of England’s Financial Stability Report showed that around 5-8% of all mortgages had been subject to some kind of forbearance. The report further concluded that arrears rates could have been around 0.5% higher than they were, 1.7%, had it not been for such forbearance.
Pressure to show forbearance is not new. Political pressure was applied to lenders during the last period of high arrears in the mid-1990s. However, the pressure applied last time round was as a result of a voluntary agreement between the Council of Mortgage Lenders and Government in December 1991. This time round the pressure is backed up by FSA ‘treating customers fairly’ initiatives and ‘Mortgages: Conduct of Business’ rules.
‘Forbearance’ creates a number of problems for those involved within professional negligence claims.
Last time round ‘failure to mitigate’ allegations, where a lender took too long to take possession of a property or too long to sell a repossessed property, were usually clear cut. Such issues often ranged from lost files where no action was taken for months or properties which were abandoned were left to deteriorate without being taken into possession.
The situation is more complex this time around. As expert witnesses we often see cases where possession proceedings have been cancelled on several occasions over a number of months with the result of a much greater loss when possession finally takes place. However, there is no simple answer – all cases are different. Advice on whether the lender was right to show ‘forbearance’ in a particular case can only be given after a detailed analysis of the papers and chronology. We suspect ‘failure to mitigate’ allegations will become as regular as ‘contributory negligence’ arguments.