CHAPTER SIX ADMINISTRATION OF SCHEME
6.1 This chapter considers the basic administration of the scheme, broadly following through the sequence of events and processes which typical cases go through. A diagrammatic and descriptive account of the administrative process is included in Appendix A. This chapter focuses on highlighting and commenting on issues. These issues include how people actually hear about and come into contact with MTR, information and communication, negotiation with key stakeholders, particularly lenders and landlords, and timescales required to complete elements of the process.
First Point of Contact
6.2 People sometimes contact the MTR team directly but mostly go to advice agencies first for advice because of debt problems. Applicants are not presenting themselves to advisers just as a technical requirement of scheme but because they are experiencing an imminent threat of eviction. Usually they are at the stage where they have already received notification of action to repossess. On occasion people in debt sought advice but had to be told that they were not yet eligible for the MTR scheme because they were not threatened with repossession.
6.3 It appears that most of the applications examined in the case file review were completed by the applicants themselves but for seven of the case files (10%) the forms were completed by the advice agency such as CAB on behalf of the client. The advice agency would then send a letter with additional detailed information about the applicant's circumstances in addition to the standard application form
6.4 Although there were a few instances of people having prior knowledge about the MTR scheme, advisers more frequently reported that borrowers learnt of the scheme through speaking with money or housing advice workers or the local authority or on some occasions the lender, and rarely presented themselves with the intention of making an application. A council reported that word had spread that they were buying back properties but enquiries were directed to the money advisers. Another council found that it received around a dozen speculative enquiries per month form people with a vague idea the "the council will buy your house".
"I don't know of clients who are ever aware of this until they meet a professional adviser, which is understandable; I've never met one yet." Adviser.
6.5 An increasing number of lenders had information about the MTR scheme and their solicitors advised debtors to contact advice agencies regarding the scheme. A lender said they routinely advised borrowers who called their offices in response to arrears letters that the MTR scheme is one option amongst many remedies, and included the leaflet about the scheme with legal letters. The borrower's awareness of the scheme was also flagged on one lender's computer system. Lenders were however, concerned about the scale of non-communication from borrowers in arrears at the early stages of the process and were not convinced all letters are opened. Advisers were also concerned that people did not come for advice soon enough in the process when there was more of a chance that lenders would exercise forbearance and renegotiate deals and repayment plans and postpone legal action.
" We find a lot of people come through with an eviction date and they haven't defended the initial action. And when you ask them why, they think there was nothing they could do; they are very unaware of their rights and the Mortgage Rights Act We actively put items in the paper and say to people: 'contact us don't leave us to the last minute, come and see us or get advice from some other agency as you find then that lenders are a bit more easy to deal with'. Once they get to the decree stage its very difficult, it ties our hands, very few would accept a repayment plan at that stage….the less time left there is less chance of negotiation." (Adviser)
6.6 A couple of stakeholders suggested that the implementation of section 11 of the Homelessness (Scotland) Act 2003), where lenders will be required to notify the local authority is an opportunity to offer professional advice and assistance at an earlier stage of the recovery process. Overall experience of applicants' first contact with the MTR scheme reinforces the conclusion that information about the MTR scheme should be made more widely available in the context of improved information about the need to seek advice early in cases of debt.
Awareness by households
6.7 Most respondents interviewed had become aware of the scheme through the Citizen's Advice Bureau or another statutory or voluntary debt advice agency or their Trustee (in the case of those who had been paying into a Trust Deed). One in ten had accessed housing advice or homelessness advice first and a handful accessed the Mortgage to Rent website directly.
6.8 Some respondents expressed the view that more people should be aware of the MTR scheme. There were also some instances where solicitors, lenders or advice agencies had a limited or no knowledge about MTR.
"There are so many companies jumping on the band-wagon. There are loads of adverts on the television. I would like the Scottish Government to advertise their scheme more. The government scheme has more of an independence and no market forces play"
"I'd actually mentioned Communities Scotland and the solicitor had said that it was a waste of time - 'Don't bother with it'"
"I don't know if its better now but I don't think the Trustee knew much about it ( MTR)".
6.9 This evidence, combined with the geographic pattern of demand for the scheme (described in chapter 4) suggests that takeup may be limited by a lack of awareness from advisers, applicants and other professionals. This would suggest more active marketing of the scheme may be necessary. However any more active marketing could have potentially significant consequences for applicant numbers.
6.10 There was widespread support of the work of the MTR team and good relations had developed between themselves and other stakeholders such as advisers, associations and solicitors and their lenders. The centralised nature of the MTR administration allowed for effective working relationships to develop that may be absent should the administration be conducted through localised schemes. The training guidance and support given to other agencies was commended and the ability to resolve any problems quickly and flexibly was appreciated. A few stakeholders suggested that the MTR team could be better resourced to actively manage the caseload so applicants and other sources of delays could be chased up and the delays minimised.
6.11 Some RSLs commented that there was a lack of information about the progress of on-going applications after they had agreed to participate. They would welcome a system of automatic updates.
Information leaflets and forms
6.12 We were impressed by the design and wording of the information leaflet and application form, which seemed very clear. It is also apparent that most applicants (90% of case files) were able to complete this form themselves. However, this point needs to be tempered somewhat by the evidence reported below that often the information provided was incomplete, for example on other loans. Stakeholders were supportive of the current application form and process and any amendments suggested were within the current parameters of the scheme and therefore relatively minor.
Communication with lenders
6.13 In Chapter 3 we discussed the difficulties surrounding 'Eligibility Criterion 1', that the household should be under immediate legal threat of losing their home. While the most common problems concerned the non-immediacy of the threat, or lack of understanding of what kind of evidence of lenders' intentions would be sufficient for MTR, the opposite problem also appeared to have arisen in a few other cases examined in the files. Here a lender wrote to applicants to inform them they (lender) had applied to the court for Decree for payment against client. Although this letter constitutes a formal demand for repayment of borrowed amount, and failure would lead to repossession of the property, the MTR team appeared to have interpreted this as 'not in imminent danger of losing ones home'.
6.14 Other problems arising between the MTR team and lenders, as identified from case files, included
- failure of secondary lender to have registered their security, therefore not picked up on search, although could register before settlement of case
- sequestration implying need to gain involvement and agreement of trustee
- arms' length relationship between lender and their lawyers, who were actually handling eviction
- cases of multiple secured debts were difficult to negotiate and advisers had to work hard with the MTR team to engage all the lenders, as they all need to agree to the property being bought by the social landlord.
6.15 The broader problems and complexities associated with multiple debts and securities, and the different practices of different lenders, are discussed further in Chapter 7. The process of involving social landlords is discussed further in Chapter 8.
Applicants' views on the process
6.16 Most applicants thought that the application process was easy although a few said they thought the form was very long or, in one case, 'dreadful'. About a quarter of applicants were particularly complementary about the information and support given by the MTR team.
6.17 The role of the debt advisers in mediating between the applicant and the MTR scheme varies. Some applicants had no direct contact with the MTR team at all. This tended to work well as debt advice agency staff knew the MTR scheme very well and applicants were often in a very distressed frame of mind. However, there were one or two cases where the applicant was unsure whether the supporting information about their application had been correctly conveyed to the MTR team.
6.18 More applicants took issue with how the application progressed beyond the initial stages of applying. Although the communication from the MTR team was generally viewed very positively, this was an area where a number of people suggested improvements might be made.
6.19 Around 1 in 5 applicants felt there were areas that they had not understood or wished had been explained better. They requested:
- more explanation of how decisions are arrived at
- feedback about what is happening, where an application is delayed by lender or landlord processes or decisions or a certain time has elapsed without a decision
- fore-warning in the guidance for applicants that, even though eligible, the sale may fall through if no landlords want to take the property on
- more guidance about what sort of information to include in supporting evidence in the application
- a warning that some aspects of the legal process can delay the sale considerably
- clearer guidance to applicants and advisers not to apply until there has been court action
- warning that many applicants do not receive equity from the sale due to the valuation, debt levels or repair costs.
6.20 Other issues that some respondents took exception to were how the eligibility rules are applied in relation to price (see Chapter 3) and the time taken for the application to be settled. Timings are explored below.
6.21 The MTR manual sets out target timescales for the application process, as shown in Table 6.1 below.
Table 6.1: Target Timescales for MTR processes
Scheme 2 survey
Landlord repairs assessment
Preparation of offer letters
Acceptance of offer letters
All parties to the application
6.22 The target time is 14 weeks (98 days). Stakeholders indicated a variety of timescales operating in practice. Some indicated that the process tended to take much longer e.g. a local authority suggested that typically cases took over 6 months. The secondary data analysis below shows that the average time to settlement is 27 weeks.
6.23 Delays occurred within the scheme that the lenders and their solicitors found unacceptable, and there was a general wish to see these delays addressed. The survey stage and the process of negotiation and agreement prior to acceptance of offers were identified as actions and processes which could be implicated in delays. These two aspects of the assessment process are discussed below.
Administrative Processing Times
6.24 Table 6.2 presents summary statistics for the actual duration of various stages of the administrative process. Figure 6.2 charts the distribution of overall times for settled cases.
Table 6.2: Duration Statistics for Different Stages of Process
Application to last contact
Application to Offer Letter
Application to Settlement
Application to Eviction
Offer Letter to Settlement
Source: Analysis or MTR administration and Allocation of Cases databases.
Note: these stages apply to different numbers of cases
Figure 1: Distribution of Time Taken for Settled Cases from Application to Settlement
6.25 For cases which are settled, the average time from application to settlement is 27 weeks, which equates to 6.2 months (compared with target of 14 weeks). The shortest time was 9 weeks and the longest recorded was 99 weeks. Only 5% of cases appear to fall within the target timescale. Figure 6.1 shows that the modal (most common) duration was 150-175 days (21-25 weeks). The number of cases taking more than a year is clearly small.
6.26 For cases which run the full course to settlement, the time is divided fairly evenly into the process up to the stage of issuing an offer letter and the stage from offer letter to settlement, with about 13-14 weeks required for each of these main stages, on average. Within the first stage there is a preliminary desk assessment, commissioning of surveys and valuations, and the finding of a landlord. Within the second stage there are the legal processes of house purchase together with the often difficult task of securing agreement of all parties, including lenders, partners and trustees.
6.27 For ineligible and withdrawn cases, the average time from application to last contact was 15 weeks and 16 weeks respectively. This indicates that engagement with the scheme can take considerable time for applicants and for the MTR staff even when the outcome is not a 'success' in the form of a settlement. Some of these cases can run into years as well.
6.28 Table 6.2 also contains a row for cases with an actual or planned eviction. This illustrates a different problem, of there not being enough time to intervene effectively. The average time shown here for application to (planned or actual) eviction is only 11 days. Clearly, some applications to MTR come too late in the process to help, although in some of these instances the eviction may be postponed or averted.
6.29 For settled cases, overall times fell from 33 weeks in 2003 to 25 weeks in 2005 before rising a bit to 26 weeks in 2007. This suggests some improvement in processing with experience following the initial period. However, there is a range of evidence that cases are becoming more complex and difficult to negotiate. This could account for the recent slight rise in process times.
6.30 There are slight geographical variations in processing times, with Lothian showing a lower average period from application to settlement.
6.31 Examination of Case Files confirmed that the timescales for decisions and processes varied considerably, from 2-3 months from application to completion to more than a year. The longest delays appeared to be where there have been complications - multiple debts and securities, a reluctance among lenders to initiate the legal process towards possession, or considerable repairs putting various landlords off buying the property.
6.32 There were instances where some applicants interviewed felt that the process was slow, even where their settlement period was actually shorter than others who said the process was about right. Applicants who felt their communication with MTR was good were more inclined to view even longer timescales more favourably. In a few instances, applicants attributed a loss of equity to lengthy delays in the process that they believed were not their fault, caused they believed by legal processes, landlord or lender delays.
6.33 It is clearly desirable to minimise the total time taken over the process, because more time often means more debt and stress for households. Setting targets may be an appropriate way to focus the administration process on this desirable outcome. However, it is clear that the current target is mainly being missed and is probably over-optimistic. It is inappropriate to give guidance to households about the likely time an application will take that is generally misleading.
6.34 In order to provide a more realistic timeline to applicants the targets should distinguish between simpler and more complex cases - with the timeline set out for simpler cases being the ideal but indicating to applicants where delays may occur and what they can do to minimise these. Anonymised case study examples in the guidance literature could be a helpful way to illustrate this.
6.35 Some social landlords had to seek board approval on every purchase, and go through the same financial risk appraisal system if they are proposing to purchase a large development scheme or just one house, and there were no delegated powers given between committee cycles. This was seen as a further cause of delay.
Valuation and Repairs Surveys
6.36 The central MTR team carry out a desktop assessment to determine whether a property is, in principle, eligible to be included in the scheme. They then commission a Scheme 2 survey which identifies and sets broad costs against necessary repairs. The landlord then visits the property, makes its own assessment, and arranges for quotes for necessary building or repair work. As discussed above there are delays in the administration of applications. Some stakeholders felt that there are often delays at the repairs survey stage (due to the need for repeated access to the property) and they questioned whether the Scheme 2 survey might be sufficient to allow the transaction to proceed.
6.37 Some housing associations interviewed felt there were no serious delays caused during the survey process except in the rare cases where there were extensive repairs required. Discussion with an RSL Clerk of Works suggested that in nearly all cases the repairs assessment can be carried out within the 3 week target. The RSL inspector visits the house and assesses the extent of work within a week and sends a report to three contractors who quote without having to gain access to the property - because the inspector provides a sufficient specification of the work including photographs and drawings as appropriate. Only in the case of significant work - usually beyond the repair grant limit of £6,000- would contractors have to visit prior to providing an estimate.
6.38 Some stakeholders argued that there is sufficient risk cover within the Scheme 2 valuation to give comfort to the associations. Valuation is carried out by an RICS member working to appropriate standards and following professional codes of conduct. In the event of a claim they would have a compulsory complaints procedure, potential for referral to an Ombudsman and would carry Professional Indemnity cover.
6.39 However, there was a strong feeling amongst landlords that an independent inspection of properties they were going to purchase was essential as part of their risk management and that they would not rely solely on the scheme 2 survey carried out by the Scottish Government agent. There is also some indication from landlord interviews that this issue might at the margins affect willingness to participate. There is, nevertheless, scope for encouraging all landlords to conform with good practice in ensuring that timescales are kept to e.g. by efficient inspection processes and ensuring that there are delegated powers to proceed between committee cycles. Clearly, there is a difference of view from the perspectives of different stakeholders here, about the balance of arguments for having a second survey as a formal part of the MTR process. We pick this up when discussing future options in Chapter 10 and associated recommendations in Chapter 12.
Negotiation with multiple lenders and landlords
6.40 Landlords and others noted that considerable delays occurred in the period after the survey had been completed. Several solicitors confirmed that in straightforward cases the process of disposing of securities and conveyancing was similar to normal transactions. It was only where there were multiple securities and/or inhibitions that the process became time-consuming, but these cases were becoming more common.
6.41 In these circumstances a number of factors compounded delays
- applicants did not always provide all of the information required
- some applicants did not identify all their debts at the outset, and it was frequently the case that further securities were found on the property, which were not previously notified.
- Lenders, particularly secondary lenders unfamiliar with the Scottish legal system, were also accused of "dragging their feet" over providing information and decisions
6.42 Most stakeholders suggested that obtaining agreement to participate can be a time-consuming process, especially where there are a number of loans and where the level of equity available from the property is insufficient for all parties to be paid in full.
6.43 Timescales are tight for solicitors, lenders and landlords but necessarily so. There was no call for these timescales to be extended as the pressure on owners was understood. Delays in coming to agreement meant that arrears would build further increasing amounts owed to creditors and making settlement more difficult.
6.44 A system requiring responses from applicants within a time-limited period and a framework for considering discretion on allowing late submissions was proposed by one solicitor. Another solicitor suggested limiting access to the scheme to lenders who signed up to a code of practice which committed them to working timeously with the system, including discharging securities to allow settlement to proceed at the right time. This could expedite things for some cases while reducing the number of cases MTR could in practice help.
6.45 One lender's solicitor also expressed concern regarding the MTR team's repeated requests to several housing associations to take on a property once the landlord who received the initial referral declined to purchase, typically because of excess repair costs. It was suggested that the number of landlords invited should be limited to one or two. This issue will be discussed further in Chapter 8, but clearly again this could reduce the number of cases which MTR could help.
Conclusions and Recommendations
6.46 The general public is not well aware of MTR and in most cases applicants have it suggested to them by advisers, lenders or social landlords. Information about the MTR scheme should be made more widely available in the context of improved information about the need to seek advice early in cases of debt.
6.47 Most applicants found the application process easy, and both applicants and stakeholders are generally complementary of the way the central MTR team operates. The centralised administration is seen as advantageous. While communication is generally viewed positively, a number of suggestions are made as to how information provided could be improved, particularly regarding the progress of applications. Applicants were seeking more information about the progress of their case, information required from them and likely equity.
6.48 Although the guidance information was felt to be clear, in practice a number of applications are delayed because of the applicant's actions. The guidance leaflet could be developed to clearly explain to the applicant what can delay the process, For example "most commonly, delays are caused by a) not enough detail about debts on the application form b) not being able to get in to complete a survey c) specific legal delays d) waiting for lender responses etc. Some of the uncertainty around communication and timescales could also be addressed by providing (good and bad) anonymised case study examples in the guidance literature, including details about the process/timing/delays. These could give examples of the type of personal information that affects decisions on eligibility (e.g. the need to live locally).
6.49 One or two people had not expected to fail in their application and thought the likelihood of success could be clearer. Providing realistic advance information to applicants may inform their decision about whether to apply or not, for example telling applicants 'we often cannot find a landlord and these are the most common reasons why'. This information could include numbers and a reminder of the key eligibility filters.
6.50 Cases generally go through a common sequence of stages, although the complexity of these varies between cases. Some confusion is associated with the requirement that legal action should be in process or imminent. Often the MTR team have to go back to applicants to get additional information or signatures, and problems arise if material issues such as secondary loans or home alterations are not initially disclosed.
6.51 Actual timescales for the process typically exceed targets by a considerable margin, with the average settled case taking 27 weeks. The time is typically evenly divided between the stages before and after the offer letter. However, for some cases the time available is too short to prevent eviction.
6.52 Although the MTR team commission a Scheme 2 survey, most social landlords carry out their own survey to assess repair cost and regard this as an essential element of risk management. However, some other stakeholders including solicitors are critical of this as creating a further delay, and suggest reliance on Scheme 2 alone (with exceptions). Some of these delays might be addressed by streamlining procedures within landlord organisations. A framework agreement approach to the main participating landlords in each area might help with this issue as well as the problems of delay and of finding landlords.
6.53 Multiple securities and inhibitions are a further major cause of delay, and further delay often leads to increasing levels of arrears. One suggestion is to confine the scheme to, or prioritise, lenders who sign up to a voluntary code of practice but this too could limit the number of cases helped, because of the role of secondary lenders.