Independent advice must be at heart of dealing with mortgage debt crisis
The company I work for manages mortgages and other loans for a range of banks in Ireland and the UK with a total value of approximately €50bn. This gives us a useful perspective into how the banks in the two countries compare in terms of dealing with mortgage arrears and whether there are any lessons for banks in Ireland from their UK counterparts.
The first thing to say is that it is clear now that the Irish banks have moved into a new phase in dealing with the mortgage crisis. After what all sides will agree was a very slow start – linked no doubt to both the scale and the sensitivity of what was an unprecedented crisis for this country – the banks are now addressing the mortgage arrears problem with real vigour and on a scale that was hard to imagine even 18 months ago.
However, while the banks are able to engage with the majority of their customers, it is also clear that for some customers, their relationship with their bank has been destroyed almost beyond repair. Confidence and trust in the bank has collapsed and contact has been broken off. For customers in this situation, this means that it is much more difficult for them to get proper advice on how to deal with their problem and, for the banks, it means that it is almost impossible to try to find a workable way forward.
Ironically, many customers might get an initial sense of relief or even euphoria when they decide not to engage with their lender. But it's a very false and misleading feeling. Breaking off communications may delay otherwise difficult decisions but it makes very unwelcome outcomes much more likely. The likelihood of repossession, for example, increases significantly where there is no engagement.
On the other hand, we find that where engagement is restored, outcomes can improve significantly. And the sooner customers who are in difficulty can get can advice that they trust, then the better the outcome for both the customer concerned and for the lender.
The key here is trust. In the midst of a mortgage crisis, unfortunately, some customers simply won't be able to bring themselves to trust the advice they are getting from the bank – regardless of how fair or balanced that advice is. They may have lost confidence in the bank or they may be afraid to share the details of their financial position with the institution.
In the UK, banks are responding to this by putting in place access routes for their customers to independent debt management agencies.
Many people are surprised that banks might be willing to encourage – even to pay for – independent advice on debt management issues for customers who are, effectively, refusing to talk to them. But in our experience they are. The reason is simple. In one sample of customers we manage on behalf of a UK bank, for example, over 85pc of customers who received independent advice on managing their debts paid more back to the bank than they were doing previously.
In that sample, the bank saw an increase in "cash collected" of some 50pc as a result of helping the customer get independent, trusted advice.
However, the exercise works for the customer as well as the lender. Customers in our sample talked of feeling a sense of control returning over their financial affairs. They talk of regaining self-respect and being able to sleep again at night.
In the UK, we now work closely with an independent debt solutions agency to whom we can immediately refer customers whom we believe would benefit from its assistance. The banks involved encourage us to do so – to the point of empowering our customer agents to initiate the referral – because they know that the outcome will likely be better both for them and for their customer.
Once the referral is made, the customer then deals directly with an appointed case-manager at the relevant debt management agency who will help them to develop a debt management plan (up to and including an individual voluntary arrangement) and manage it out over time.
However, the key is making that referral as easy and speedy as possible. Our agents can make the referral from the phone call on which they are engaged with the customer; seamlessly putting the customer in touch with an agent who can begin work immediately.
Irish banks have made tremendous strides in recent months and some banks are now experimenting with referring certain customers to independent advisors. However, it is occurring now only on a relatively small scale.
Perhaps the next challenge is how to put in place the type of broader infrastructure that could cope with the likely demand that exists for this type of service. The outcomes we've seen for both sides of the mortgage arrears crisis suggest this could make the effort very worthwhile.
David Kelly is Managing Director for HML in Ireland. HML employs over 400 people in centres in Dublin and Derry and manages loans for a range of banks in Ireland and the UK.