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The traffic light letters have been arriving through letterboxes at homes across Scotland. For some the news has been a bolt out of the blue. Many homeowners who have paid their mortgage each month in good faith for 25 years are now finding, as they approach or reach their retirement, that they may not be able to clear the debt at the end of that period. Our personal finance editor, Teresa Hunter, who has been at the forefront of reporting the loans debacle, last week was inundated with e-mails and letters from those worried after reading her exclusive report. Here she addresses some of the major issues and pitfalls that many people are now facing and answers a variety of questions put to her by readers concerned for the future The Association of British Insurers last week published its latest report on "traffic light" letters which are currently being sent to endowment policyholders throughout the UK, giving them an update on their contracts' performance. The report claimed that nearly two- thirds of endowment mortgages would not repay the homeloans of their holders on maturity. The ABI said it was unable to calculate the total shortfall, but a figure of around (pounds) 60 billion had been reported in some sections of the media.

LAST week The Sunday Herald rev-ealed the endowment timebomb was far worse than previously feared. The paper was inundated with concerned readers' letters and e-mails - more than we have received on any other financial subject since the paper was launched over three years ago. An alarming number of borrowers in Scotland are left bewildered and badly let down by the worsening news of their mortgage shortfall. They have received their traffic-light letters, with red meaning that they will have to pay more; amber that they may be expected to fork out extra; and green for endowments that are on course to meet their obligations.

Yet there is a feeling that there is nowhere to go for advice that is trustworthy. So what advice can we give? Those with serious problems need help from an independent financial adviser. But this will cost money, and it may have been such an adviser who sold them the endowment in the first place. Some may be able to claim compensation for having been mis-sold in the first place, but to be successful they will need to prove that they didn't understand what they were getting into and that they have lost out as a result. Only holders of endowments sold after 1988 can claim under the investor protection measures of the Financial Services Act, but those sold before are less likely to be in trouble.

To complain, you must be in a position to argue that you did not understand you were investing on the stock market and that it was never explained to you that there was a chance the mortgage would not be repaid at the end of the term. Complain first to whoever sold you the endowment. If you have no success but still feel strongly that you have been wronged and ought to be paid compensation, then complain to the Financial Ombudsman Service.

When assessing compensation, he will attempt to put you back in the position you would have been in had you not taken out an endowment. This may involve switching you to a repayment loan and making up for lost time.

The ombudsman will ask you and the company for evidence of what information was given to you at the time. This might take the form of a "reason why" letter or a "know your customer"survey. Even if you didn't read or understand these documents, making a complaint will be more problematical if they were given to you and you signed them.

Even then, however, all is not lost. Furthermore, the reality is that few firms are able to provide such complete evidence. Many cases turn on what a sales representative is alleged to have said to a customer, and what he says he said. If there are serious conflicts between the evidence of the representative and that of the complainant, then the ombudsman has to decide who is likely to be closer to the truth. A large number of complaints against a particular representative, for example, would count against him and in your favour. The position of borrowers who were sold an endowment which ran into retirement is looked at particularly sympathetically, but that doesn't automatically mean you will get compensation.

Again, it will all hinge on what you said at the time, what was explained to you, and whether sensible alternatives were considered. A major factor will be how easily you could afford to keep up endowment premiums once you were retired.

And the ombudsman will look at what kind of investor you are. Do you already own complicated investments? What other savings do you have? Your investor profile will be investigated if you make a complaint, however old you are. Young people such as first-time buyers, particularly those without dependents, could claim that they didn't need any life insurance and that an investment which tied them in for 25 years was unsuitable at an early stage in their careers when they needed flexibility. They also might justifiably be able to claim they didn't understand what they were getting into. In an attempt to shed light for readers we have reproduced a small selection of the e-mails we have received, with our views on action that might be taken.

LETTER ONE: My mortgage is with Bank of Scotland, a five years fixed rate (8.9%) due to run out on June 15 this year. I have an endowment mortgage which I pay every month to CIS insurance, a 25- year contract.

Since joining CIS I have received the original documents and only one letter from them. After many attempts to contact them I still have no idea where my policy is going or how well/bad it is doing. I am fed up with trying to contact them to get some information.

I would like to know if you have any information about my options when my five years' fixed rate runs out in June. I was very inexperienced when I took out my mortgage; I was a first-time buyer with no idea about what the different mortgages meant and was not informed that it may not meet the balance of the mortgage on its maturity.

ANSWER: CIS is adamant that you will have been sent a bonus declaration each year and a letter giving you an update on your contract's performance. You should ring its call centre on 08457 46 46 46 and find out what has gone wrong. If you were not informed of the risks involved in buying an endowment then you may have a case for a complaint for mis-selling.

LETTER TWO: My wife and I currently have three endowment policies which total (pounds) 70,000. At present I am 53 and my wife is 38. I will be 69 when two of them mature. How do we go about claiming to have been mis-sold based on the fact that I will have reached retirement age?

ANSWER: If there is a shortfall then you should complain first to the company. If you get no joy there, then complain formally to the Financial Services Ombudsman. You will need to prove that allowing the contract to run into your retirement was a problem for you and the full implications were never explained.

LETTER THREE: In 1976 we took out a Home Purchaser Endowment policy with Scottish Amicable. It matured last year and we decided to add some savings and pay off our mortgage. In 1984 we added another home purchaser policy for safety, which matures in 2004. As we no longer need this second policy to pay off our mortgage, should we take the value now, estimated at (pounds) 15,000, and save on the monthly premiums of (pounds) 36, or leave it to maturity in two years?

ANSWER: You need to get a valuation of what the policy might produce in two years, and what the surrender value will be now. In general, because it has been running for some years, has built up good value, and should benefit from a terminal bonus, it will probably make sense to keep it running. But you need to look at the figures. You may still be getting tax relief on the premiums, which is another bonus. Tax relief was abolished in 1984.

LETTER FOUR: I continue to be puzzled by the alarming reports about endowment-backed mortgages. I can understand why people could be in trouble if they took out endowments shortly before interest rates fell sharply. But presumably most endowments linked to mortgages last for a 25-year period, and during most of the past 25 years interest rates have been much higher. Assuming that the number of "starts" is roughly the same in each of the past 25 years, it seems surprising that as many as two-thirds of endowments will be insufficient to pay off the mortgage.