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Research Report: Managing mortgage stress
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Managing mortgage stress  ( 2011 )  Cite this report



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1. Introduction


The MHS is a joint project of Legal Aid NSW and CCLC.6 It provides legal assistance and financial counselling to people experiencing mortgage stress with a view to assisting them to save their home, or, in situations in which saving the home is not a viable option, minimising loss and ensuring outcomes favourable to the borrower.

Key features of the MHS are that it:
  • has established new and dedicated positions to supplement existing face-to-face and telephone legal services to homeowners experiencing mortgage hardship
  • targets clients at risk of mortgage default, to reach them at the earliest possible opportunity before their mortgage problems escalate
  • provides a flexible, multi-disciplinary, tailored approach to mortgage hardship assistance that may involve financial counselling in addition to the provision of advice, minor legal assistance and/or casework (for definitions of these terms, see Table 1)
  • provides a duty service at the Supreme Court for homeowners already subject to repossession proceedings.
The MHS commenced at CCLC on 1 July 2009 and at Legal Aid NSW on 1 October 2009. The program was funded by the PPF for a period of two years.

Before the MHS

Before the commencement of the MHS, mortgage matters in NSW were dealt with by a number of public legal assistances: Legal Aid NSW, as part of its general civil law practice; CCLC; and generalist community legal centres (CLCs) assisting local clients with mortgage hardship issues. In addition, LawAccess NSW,7 which functions as a legal referral triage service, could refer clients to Legal Aid NSW and CCLC or provide mortgage-related legal information and advice directly.

However, CCLC did, and continues to, specialise in the provision of credit- and debt-related legal services in NSW. This includes the statewide provision of legal assistance and financial counselling on mortgage matters, largely by telephone.

Forming the MHS

Legal Aid NSW and CCLC noticed that, during the mid 2000s, mortgage defaults were on the increase and were accounting for an increasing proportion of their work. Figures from Fitch Ratings,8 as well as from other independent economic analysts, revealed a large and increasing number of homeowners in default of their home loans, and that number was far greater than the number of people in mortgage stress seeking assistance from the public legal assistance sector. In addition, there were record levels of mortgage repossession applications in the Supreme Court of NSW (2008, p. 58): in 2004 there were 3061 applications; this rose to 5472 in 2008.

In September 2008, the Global Financial Crisis (GFC) struck. Legal Aid NSW and CCLC expected that this would only exacerbate mortgage hardship. It was in this context that the MHS, including a Supreme Court duty roster, was established.

MHS services

In establishing the MHS, it was argued that well-timed but relatively minor legal assistance could help to prevent mortgage hardship from escalating to the point at which homes were lost. With this in mind, the MHS provides face-to-face and telephone legal assistance and financial counselling to people experiencing mortgage hardship. Assistance is given in the form of legal advice, minor assistance and, where necessary, casework. Casework is the most intensive form of assistance offered.

The MHS provides assistance with processes such as hardship variations to loan contracts, or, when borrowers have no capacity to repay their mortgage, by negotiating time to sell the property to avoid a lower sale price and the higher enforcement costs arising from a mortgagee sale. MHS assistance may also include assistance in ADR processes or representation at court when homes are at risk of being repossessed.

The new positions and services provided under the MHS are described below.

The MHS at Legal Aid NSW

Under the MHS, Legal Aid NSW employed two dedicated solicitors to provide specialist mortgage hardship advice, minor assistance and casework support. The bulk of the agency's mortgage hardship work became the responsibility of these solicitors once the program commenced. These solicitors are also responsible for the administration and coordination of the MHS and for building relationships with local financial counsellors, providing them with ongoing training and support, taking and receiving referrals and working together on particular matters when required.

One MHS solicitor is based at the Parramatta Legal Aid office and the other at the Gosford Legal Aid office. These locations were selected for their proximity to areas identified as mortgage stress hotspots9 — areas with high levels of mortgage default. The placement of solicitors near to mortgage stress hotspots is supported by research indicating that proximity to legal services affects whether or not people access such services and how they do so (Sandbach 2004; Patel, Balmer & Pleasence 2008).10

Apart from the two MHS solicitors, other Legal Aid NSW civil law solicitors continue to provide legal services for mortgage-related matters.

The MHS at CCLC

Under the MHS, CCLC created two new positions for solicitors to work with the four existing credit solicitors.11 While any CCLC solicitor may provide legal assistance for a mortgage matter, the new MHS solicitors have taken the largest share of the mortgage files.

CCLC also created an additional financial counsellor position, shared by two staff. This position augments four existing financial counsellor positions. Financial counsellors work closely with CCLC solicitors to determine a client's financial position and to assess their capacity to repay their mortgage in the short, medium and long term. They also undertake negotiations with a range of other non-mortgage creditors to have repayment arrangements put in place.

The role of LawAccess NSW

LawAccess NSW was not provided with additional resources under the MHS; however, the service was an important partner to the project. All material promoting the MHS included the LawAccess NSW telephone number as a principal contact. LawAccess NSW staff were trained by MHS solicitors on referring mortgage hardship matters to the MHS. It is also important to note that LawAccess NSW provided assistance on mortgage matters, and that records of this assistance form part of the Legal Aid NSW corporate data used in this evaluation.

Early intervention strategies

Several strategies were pursued in an attempt to reach as many people as possible who were experiencing mortgage stress, and to reach them at early stages of mortgage hardship. As noted above, Legal Aid MHS solicitors were located in offices close to mortgage stress hotspots. They also liaised with unions and employer groups, and conducted outreach to areas in which large-scale redundancies had occurred or were likely to occur (for example, due to the closure of a factory).

Legal Aid NSW and CCLC MHS solicitors also provided training to and developed working relationships with financial counsellors in local community and welfare services, in order to facilitate the early referral to the MHS of people experiencing mortgage hardship.

Finally, the MHS was promoted statewide through the media and the distribution of program information, including the Mortgage stress handbook and DVD, instructing people what to do if they were in default of their mortgage. The services of the MHS were also directly advertised through a letterbox drop in mortgage stress hotspots.

Supreme Court duty lawyer roster

A duty lawyer roster at the Supreme Court of NSW was established under the MHS. The Supreme Court duty roster was staffed by solicitors from CCLC and Legal Aid NSW and commenced in August 2009. Duty solicitors provide advice at court to homeowners involved in repossession proceedings, as well as referrals to the CCLC or Legal Aid MHS for further assistance.

This component of the MHS was established because it was recognised that clients could be provided with valuable assistance even at the stage of losing their home. While this assistance may not always prevent repossession, it assists clients to make sensible choices and to achieve the best possible outcomes in their circumstances. This is also likely to result in savings in time and resources for clients and the court.

CCLC, <http://www.cclcnsw.org.au>, is a community legal centre specialising in financial services, particularly matters and policy issues related to consumer credit, banking, insurance and debt recovery. It is the only such centre in NSW, and it has a particular focus on issues that affect low-income and disadvantaged consumers. CCLC provides a statewide service mainly providing telephone advice, and casework including minor assistance.
LawAccess NSW, <http://www.lawaccess.nsw.gov.au>, is a free government telephone and internet service that provides legal information, advice and referrals for people who have a legal problem in NSW. LawAccess NSW has been established as a first point of contact and referral for all public legal assistance services in NSW.
Fitch Ratings, <http://reports.fitchratings.com>, `is a global rating agency [that provides] the world`s credit markets with independent and prospective credit opinions, research and data ... Fitch Ratings is widely recognised by investors, issuers and bankers for its credible, transparent and timely coverage`.
Mortgage stress hotspots were identified using Fitch Ratings as NSW locations with a high number of mortgage defaults. Legal Aid NSW reported that the September 2008 Fitch Ratings report identified the five worst performing regions for mortgage defaults in NSW as Fairfield-Liverpool, Gosford-Wyong, Outer South Western Sydney, Outer Western Sydney and Newcastle (personal communication July 2009, Legal Aid NSW).
Patel et al. (2008) noted that people who live at a greater distance from legal assistance services will contact those services, for instance by telephone, but commented that this mode of contact may not always be the most appropriate for those clients.
In total, there are nine full-time equivalent solicitor positions at CCLC covering insurance (three), general credit (four) and the MHS (two). While the solicitors do more work in their area of responsibility (e.g. the MHS), all CCLC solicitors can provide information, advice and representation services, and conduct community legal education and law reform, across all areas related to credit, debt and banking (personal communication July 2009, CCLC).

 CCLC, <http://www.cclcnsw.org.au>, is a community legal centre specialising in financial services, particularly matters and policy issues related to consumer credit, banking, insurance and debt recovery. It is the only such centre in NSW, and it has a particular focus on issues that affect low-income and disadvantaged consumers. CCLC provides a statewide service mainly providing telephone advice, and casework including minor assistance.
 LawAccess NSW, <http://www.lawaccess.nsw.gov.au>, is a free government telephone and internet service that provides legal information, advice and referrals for people who have a legal problem in NSW. LawAccess NSW has been established as a first point of contact and referral for all public legal assistance services in NSW.
 Fitch Ratings, <http://reports.fitchratings.com>, `is a global rating agency [that provides] the world`s credit markets with independent and prospective credit opinions, research and data ... Fitch Ratings is widely recognised by investors, issuers and bankers for its credible, transparent and timely coverage`.
 Mortgage stress hotspots were identified using Fitch Ratings as NSW locations with a high number of mortgage defaults. Legal Aid NSW reported that the September 2008 Fitch Ratings report identified the five worst performing regions for mortgage defaults in NSW as Fairfield-Liverpool, Gosford-Wyong, Outer South Western Sydney, Outer Western Sydney and Newcastle (personal communication July 2009, Legal Aid NSW).
10  Patel et al. (2008) noted that people who live at a greater distance from legal assistance services will contact those services, for instance by telephone, but commented that this mode of contact may not always be the most appropriate for those clients.
11  In total, there are nine full-time equivalent solicitor positions at CCLC covering insurance (three), general credit (four) and the MHS (two). While the solicitors do more work in their area of responsibility (e.g. the MHS), all CCLC solicitors can provide information, advice and representation services, and conduct community legal education and law reform, across all areas related to credit, debt and banking (personal communication July 2009, CCLC).


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Forell, S & Cain, M 2011, Managing mortgage stress: evaluation of the Legal Aid NSW and Consumer Credit Legal Centre Mortgage Hardship Service, Law and Justice Foundation of NSW, Sydney