Because of a chaos around technical details the European directive on mortgage credit may not see the green light by the end of this year in Bulgaria, although it was approved by Parliament in early September and all major texts in it were agreed. But this is not the situation with the so called transposition tables. They describe the conditions that each EU Member State must meet in order to be sure that the requirements of relevant European document are accurately reflected in national legislation. For texts of no directive are literally transposed in the laws of the Member States. Partly because EU regulations allow in the implementation of some of the texts, the countries themselves to decide what and how much restrictions or incentives to implement. For example, when talking about mortgage loans – each country will have the right to decide whether it will introduce fees for early repayment and if it has them – to determine both how they are formed, and their maximum size. According to legal experts, such transposition tables can lead to new, albeit partially opening the file of the directive – or, so to say – it may again be considered by the European Commission and the European Parliament. If this happens, the final adoption may be delayed by several months, but it will not be surprising if the process drags on more than a half year.
Regardless of what happens with this EU directive, however, a group of MPs from the leftist Coalition for Bulgaria led by Rumen Getchev are determined within one month to prepare a draft law on mortgages and submit it for discussion and adoption by the National Assembly.
I want to be clear that the wording of the texts in the bill that we are preparing refer to
first or only home
pledged against mortgage and not for any other immovable properties, second or third homes. Furthermore, we explicitly include texts that clearly state that the legal requirements that we are preparing will only apply to contracts concluded after its entry into force. This will avoid any possibility for it to serve any lobbyist or narrow business interests, Rumen Getchev told the BANKER. Asked whether it is best to wait for the final adoption of the European directive, he explained that he was familiar with its texts and was closely following the discussions so that the draft being mulled over by Bulgarian lawmakers is consistent with the requirements described in the directive.
According to Getchev there are three sets of issues that need to find a consensus among the various stakeholders in the drafting of the bill. The first group concerns the
fees for early repayment
I think here we were able to bring their positions closer to those of the banks. They agree that this fee will be minimal and varies between zero and 1% of the debt. The same as it is with consumer loans. This will enable the debtors to refinance their loans under more favourable conditions, will create competition among banks, from which their customers will benefit. In a nutshell, we will introduce some real market conditions in the provision of this financial product , said MPs of the Coalition for Bulgaria.
The second group is associated with
how to determine the interest
on a mortgage loan. Getchev expressly declared that he was against floating rates or the methods many banks in the country use – rates to be determined on the basis of their cost of funding. Incidentally, in the draft version such schemes were eligible. It is unacceptable for banks to notify customers of the change in interest rates after the fact, not before such changes take effect. It is a scandal to require customers almost every so often to go to the offices of the banks and inform themselves whether the interest rate has not changed, sais lawmakers. According to them, the bill will have a requirement for banks to make a fully transparent and comprehensible model for the calculation of interest rates on the price of the resource, so that interest rates can only be changed if necessary by objective market conditions and not because of deteriorating financial results generated due to poorly managed risk by bank management.
The third group of questions concerns when
the client is in trouble to service his or her obligations
We made a comparison with the practice in many European and non-European countries. And there are differences. In the U.S. where a loan is not serviced regularly, the property through which the loan is secured is acquired by the bank and thus the debt is considered repaid. Yet there, the mechanism of mortgage lending is very different. The situation there is that these loans are in fact financial leases and the bank actually owns the home until it is fully repaid.
In Denmark , when a citizen cannot pay his mortgage, he or she has to leave home and, figuratively speaking, if out on the street, but the municipality shall provide housing. This is a good decision, but our country cannot afford it , because neither the local nor the state authorities have the resources for such a decision, sais Mr. Getchev . Yet he recognized that in the current economic climate it is not right all the burden of such a situation to be thrown upon banks. On the other hand, it cannot fall entirely on the back of borrowers. We need to find some equilibrium in the middle, which will probably take the shape of a burden sharing at 50/50, the MP pointed out.
How exactly that sharing will take place remains to be seen. But the banks, at least for the moment, do not agree to any concessions on this issue. Their managers claim that they actually begin to carry the weight of a non-performing loan in the moment it defaults by more than 30 days. This was because banks are required to set aside provisions under the respective loan by reducing the financial result and even capital if they have to go at a loss.
In fact, in the draft text of the EU directive considers the hypothesis that a bank and a client can agree when it comes to the creditor obtaining the mortgage property and with this act the loan may be considered repaid. This can happen only if the signed contract included such a clause.
The BANKER
