Note: the original hard copy of this report is 107 pages .

cover image

Managing mortgage stress: evaluation of the Legal Aid NSW and Consumer Credit Legal Centre Mortgage Hardship Service   

, 2011 The MHS is a joint project of Legal Aid NSW and CCLC. 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.

Executive summary


The Mortgage Hardship Service (MHS) is a joint initiative of Legal Aid NSW and Consumer Credit Legal Centre (CCLC) providing legal assistance and financial counselling to people experiencing mortgage stress. The MHS aims to assist people in mortgage stress to save their home, or, in situations in which saving the home is not a viable option, to minimise loss and ensure outcomes favourable to the borrower. Key features of the MHS are that it: The MHS commenced at CCLC on 1 July 2009 and at Legal Aid NSW on 1 October 2009, with the program funded by the Public Purpose Fund (PPF) for a period of two years. This funding provided for two new solicitor positions and a financial counsellor position at CCLC and two new solicitor positions at Legal Aid NSW, one based at the Parramatta Legal Aid office (largely to service clients living in the Greater Western areas of Sydney) and the other at the Gosford Legal Aid office (largely to service the Gosford-Wyong area).

The evaluation of the MHS

Using Legal Aid NSW and CCLC corporate and program data, and the results of follow-up interviews with a modest number of MHS clients, this evaluation of the MHS examined: Findings

In the current economic climate of increasing living costs and the prospect of rising interest rates,1 the results of this evaluation indicate that the MHS continues to represent a relevant and important legal service to safeguard the interests of people who experience mortgage stress.

Amount of assistance provided

During the period of the evaluation, the first 16 months of the MHS, Legal Aid NSW and CCLC provided over 3000 occasions of service to mortgage hardship clients. Each month, the MHS dealt with an average of 37 mortgage casework and minor assistance matters and over 250 advices.

The evaluation identified a 45 per cent increase in the number of advices and a 116 per cent increase in the number of minor assistances provided by Legal Aid NSW for mortgage matters following the commencement of the MHS. After taking into consideration extraneous factors, the amount of mortgage casework provided by Legal Aid NSW was found to have remained stable. CCLC dealt with 64 per cent more mortgage casework (including minor assistance) matters in the first year of the MHS compared to the year prior to the MHS.2

Assistance to clients in mortgage stress hotspots

Both Legal Aid NSW and CCLC MHS clients tended to come from areas previously identified as mortgage stress 'hotspots', that is, areas with high levels of mortgage default.3 Indeed, 51 per cent of the sample of 287 Legal Aid MHS clients came from the Local Government Areas (LGAs) of Wyong, Gosford, Blacktown and Penrith. The placement of the Legal Aid MHS solicitors at the Legal Aid offices in Gosford and Parramatta, both within the vicinity of these areas of high mortgage stress, may have itself also attracted clients to the MHS.

CCLC offered a statewide service, largely by telephone from its Sydney office, providing advice or assistance to clients living in three-quarters (76%) of all LGAs in NSW. There were similarities in the geographic distribution of CCLC and Legal Aid MHS clients, with the greatest concentration of CCLC MHS clients coming from the LGAs of Blacktown (6% of total), Wyong (4%) and Gosford (4%). Campbelltown, Penrith and Liverpool LGAs also recorded high numbers of CCLC MHS clients.

Characteristics of MHS clients

Loss of employment and under-employment (including reduced income from self-employment and business failure) featured as reasons given by clients for their mortgage hardship. This is consistent with other studies on mortgage hardship issues (Berry, Dalton & Nelson 2010; Urban Research Centre 2010). Other hardships identified by clients included illness and injury (more prominent among casework clients) and family breakdown.

Differences in the ways in which employment and benefits information was recorded by the two agencies made comparisons difficult, but some are possible. Nearly 60 per cent of Legal Aid MHS sample clients were recorded as being 'unemployed', while 48 per cent were receiving a Centrelink benefit. More than one-third of CCLC MHS clients were on government benefits, including unemployment benefits. Both agencies recorded a higher proportion of casework clients than advice clients (advice or minor assistance clients for Legal Aid NSW) as being on Centrelink benefits.

In our analysis of demographics, and based on their share in the population of NSW homeowners, we noted a higher than expected proportion of people aged 60 years and over among the MHS client groups (17% of CCLC clients and 15% of sampled Legal Aid NSW clients). This was striking because: Characteristics of lenders

Overall, 63 per cent of the Legal Aid NSW sample of MHS clients and over 62 per cent of CCLC MHS clients had borrowed money from a bank lender (that is, an Authorised Deposit-taking Institution) rather than from a non-bank lender. However, both agencies recorded that a significantly higher proportion of casework clients than advice clients had a mortgage with a non-bank lender.

These are notable findings for a number of reasons. First, clients who took out a non-bank loan might have been more marginalised than clients who took out a mortgage with a bank, in part because non-bank lenders were more likely to lend to 'riskier' clients (Berry et al. 2010). Second, a number of MHS solicitors reported that while non-bank lenders were relatively more generous in approving loans, they tended to be more stringent in enforcing mortgage repayments. (The reasons for the non-conforming behaviour of non-bank lenders are considered in the 'Discussion' chapter.) This may have had more of an effect on those who had to borrow more, those who may have had greater difficulty in making repayments on time and those who had fewer savings and therefore less in reserve when their income was interrupted (through unemployment, illness or injury). It may also be the case that, as a result of banks referring to the MHS their customers who were experiencing mortgage difficulties, clients with bank lenders were generally receiving assistance at an earlier stage of the process than clients with non-bank lenders.

Referrals to the MHS

More than one-third (35%) of Legal Aid MHS clients sampled were referred to the MHS by an independent financial counsellor, and 15 per cent were referred by a court, the Financial Ombudsman Service (FOS) or the Credit Ombudsman Service Limited (COSL). FOS and COSL are Alternative Dispute Resolution (ADR) bodies. (ADR is also known as External Dispute Resolution, or EDR.)

The most common source of referral to CCLC was the lender or creditor (24%) followed by LawAccess NSW, a triage point for legal issues in NSW (18%). Ten per cent of CCLC MHS clients were referred by a court or ADR. A further eight per cent were referred by an independent financial counsellor. Program publicity was noted as a source of referral for only five per cent of CCLC MHS clients and less than one per cent of Legal Aid MHS clients.

It appears that the relationships built with other relevant agencies — especially lenders, independent financial counsellors, courts/ADR bodies and LawAccess NSW — probably represent even more fruitful ways of putting people experiencing mortgage stress in contact with the MHS than community-wide publicity or marketing strategies. If the aim is to reach clients 'early', then it is a positive sign to see referrals to the MHS from LawAccess NSW and from lenders and local (non-MHS) financial counsellors.

Early intervention

Early intervention is based on the notion that clients who are assisted early (before legal or court processes have commenced) may be helped more efficiently and effectively than clients who do not seek help until the legal process is well underway. Furthermore, research into mortgage stress indicates that, generally, the earlier people act when they fall into arrears, the less debt they accumulate (Berry et al. 2010).

This evaluation sought to identify where clients were in the legal process before they first sought help from the MHS. To explore this, a record was kept of the 'stage of enforcement' that each client's matter had reached when they first contacted the service. The evaluation found that, by the time clients first contacted the MHS: Among the clients who did not reach the MHS until late in the enforcement process were those who were first assisted through the Supreme Court duty roster provided by the MHS, which is geared to assist people already facing home repossession.

Types of assistance provided

In the first 16 months of the MHS, 891 CCLC MHS clients (89%) were provided with advice only, while a further 109 clients (11%) were provided with casework (with or without additional advice). Of the casework clients, more than one-third received minor assistance, defined by CCLC as casework of less than five hours. Of the sample of 287 Legal Aid NSW clients examined, 46 per cent were provided with advice, 35 per cent received minor assistance and 19 per cent received casework.

Stage of enforcement by type of assistance given
For both CCLC and Legal Aid MHS clients, we observed differences in the assistance provided to clients depending on when in the enforcement process they first sought help. Clients who first contacted the MHS before they received a statement of claim (Stage 1 or 2) tended to receive advice rather than minor assistance or casework. By contrast, clients who did not seek help until after a statement of claim had been issued (Stage 3 or 4) were more likely to receive minor assistance or casework than advice. However, if clients were already subject to their home being repossessed (Stage 5 or 6) before they contacted the MHS, they were more likely to receive advice than minor assistance or casework. This would appear to be a function of there being less legal assistance that can be gainfully provided by the MHS to help clients whose mortgage matters were well progressed in terms of the repossession process.

Outcomes for MHS clients

For clients who received minor assistance or casework, information was recorded about what had happened to the mortgaged property at the time their file was closed. However, we caution the reader, since this information is not comprehensive and is available only for a small set of both Legal Aid NSW and CCLC MHS clients, that the findings are not necessarily representative of the outcomes for all MHS clients. Nor can we assume that the MHS is the only factor influencing these outcomes.

Of the sample of 62 Legal Aid MHS casework and minor assistance clients with closed files for whom an outcome was recorded: 35 retained their home; nine were able to sell their house prior to the lender repossessing it, or were in the process of doing so; and seven had surrendered their home to their lender or had their home repossessed.4

In comparison to the Legal Aid MHS sample, a greater proportion of the CCLC MHS clients for whom an outcome was recorded sought assistance at later stages of the enforcement process. This may have affected the outcomes that could have been achieved for these clients. With this in mind, of the 54 CCLC casework (which includes minor assistance) clients with closed files and for whom an outcome was recorded: 26 clients retained their home (generally after negotiation with the lender or following a hearing at court or tribunal); 12 were able to sell their house prior to the lender repossessing it, or were in the process of doing so; and nine had had their home repossessed by the lender.5

Notably, all clients whose home was repossessed at the time their file was closed had sought help only after receiving a statement of claim (Stage 3). However, not all clients who first sought help from the MHS at Stage 3 or later of the enforcement process lost their homes. Half of the CCLC and one-third of the Legal Aid MHS minor assistance and casework clients who retained their home at the time their file was closed had not sought help until after they had received a statement of claim.

A small-scale follow-up survey was conducted with 38 MHS clients after their file was closed, with a particular focus on clients who had retained their home at the time their file was closed. While not necessarily representative of all MHS clients, some valuable insights can be drawn from their survey responses.

Twenty-seven respondents said they felt more in control of their financial situation at the time of follow-up, while five said they felt 'about the same' and six said they felt 'less in control'. Of note, some of those who felt more in control no longer owned the mortgaged property. For these clients, the assistance provided by the MHS — to make a realistic assessment of their financial situation and to help them sell their property — may have been the best option in their particular circumstances.

Measuring success

The results of the survey raise the question of what might be the most appropriate measures of success for the MHS. Is a primary indicator of success the number of homes saved, or is it perhaps the number of clients who have achieved greater financial stability? While some clients may be able to retain their home and remain financially stable, the circumstances of other clients may preclude this outcome. This is already recognised in the twin objectives of the MHS: to save homes or to achieve the best possible outcome in the circumstances. Other positive outcomes for clients, which could be identified as indicators of the effectiveness of the MHS, may include the client selling their home on their own terms, and the client attaining greater financial stability.

The survey identified some other potential benefits arising from the assistance provided by the MHS and from the resolution of mortgage matters, including client-reported reduced levels of stress and anxiety and increased levels of confidence in their ability to deal with and seek help for their financial problems — rather than 'burying their head in the sand' — should the issue arise again. The potential to change attitudes and empower clients to act more positively should not be dismissed as minor or incidental benefits of the MHS.

Ongoing monitoring of the MHS

This evaluation has not only quantified the considerable amount of work undertaken by CCLC and Legal Aid NSW in providing legal assistance to people experiencing mortgage stress, but has also attempted to examine the impact of the operations of the MHS since its commencement. In the future, monitoring of the MHS by Legal Aid NSW and CCLC should focus on streamlined data collection that can be incorporated into the day-to-day administration of the MHS. This would aid in the measurement of program activities and outcomes. As a result of the evaluation, we offer five recommendations, listed below.
  1. Legal Aid NSW and CCLC continue to record stage of enforcement at the time when clients first contact the MHS as well as at each subsequent occasion of service.
  2. Assisting clients before their mortgage hardship matter escalates to Stage 3 becomes one of the measurable 'early intervention' goals of the MHS.
  3. The MHS retains the capacity to assist clients who are already at later stages of mortgage hardship when first detected, including those with more complex needs.
  4. The effectiveness of the MHS be considered primarily in terms of achieving the best possible outcome for each client rather than in terms of saving homes. While saving homes remains a legitimate goal, other important but not necessarily compatible outcomes include clients selling their home on their own terms and clients achieving greater financial stability.
  5. Consideration be given to the ongoing recording of outcomes for a small selection of clients at regular intervals, as outlined in the 'Discussion' chapter; this would provide a solid basis for better attributing outcomes to the program and for measuring client satisfaction with the legal assistance provided through the MHS.

 In March 2010, the Reserve Bank of Australia estimated that 27,000 households across the country were in mortgage arrears. The number had risen from an estimated 23,000 at the end of 2008 (Berry et al. 2010).
 Because of changes to administrative systems and recording practices, it was not possible to compare CCLC advices before and after the commencement of the MHS. (See the `Methodology` section in `The evaluation` chapter, for more detail.)
 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).
 Eleven Legal Aid casework clients and seven CCLC casework clients reported an `other` outcome -- often that the matter had not reached a final resolution.
 The other seven CCLC casework clients had `other` as their recorded outcome.