DEPUTIES are always on the look-out for worthy causes to embrace and thus show they are the real protectors of the people. Given the low regard politicians are held in at present, finding a worthy cause has become more of an imperative. One has been found in what is popularly known as the ‘protection of the primary residence’.
With banks obliged to reduce the very big number of non-performing loans (NPLs) on their books, foreclosures have become their only option. This, deputies concluded, would lead to banks kicking people out of their homes because they had fallen on hard times and were unable to make repayments on their housing loans. Many unemployed people would run the risk of becoming homeless if the banks embarked on re-possessions, argued deputies, and they had a point.
Even the troika favoured the protection of primary residences and the Central Bank issued guidelines for the banks in handling NPLs. The guidelines proposed restructuring of loans – reducing instalments and extending the repayment period; introducing a grace period on the repayment of capital for a short time; consolidating a number of loans into one new one – but on no account envisaged the suspension of repayments.
Yet a suspension of repayments is the main provision of the bill drafted by AKEL and EDEK currently being discussed by the House legal affairs committee. If approved, the law would allow a person who failed to reach agreement with the bank, over the restructuring of his loan, to seek a suspension of repayment in the court. Deputies claim applying to the courts would be the last resort after all other methods of reaching an agreement between the lender and the borrower were exhausted.
There will also be a financial ombudsman with the authority to mediate in disputes over restructuring loans, but the law setting up this position and defining its powers will not be ready before the end of the year. Finance Minister Harris Georgiades has pleaded with the House to wait for this government bill, which is part of the adjustment programme and will include a provision to protect primary residences, but his pleas have been ignored.
Deputies argue that people in danger of losing their homes could not wait until the end of the year and said their bill would be passed by the end of this month. In the last few days they have been using the fact that there were 6,000 foreclosure applications at the Lands and Surveys Department to justify their urgency. What they have failed to clarify is when these court decisions were issued and how many of them relate to primary residences, because this would undermine their holy mission to save home-owners.
The danger is that our populist deputies never think things through and their good intentions, fired by reckless populism, are certain to cause many more problems than they solve. First it would encourage many home-owners to refuse restructuring their loans so that they can go to court and seek a suspension of repayments. During the two, three or four years this process would take, they would pay nothing to the bank secure in the knowledge that foreclosure was not an option.
Worse still, our wise deputies’ bill would not only protect home-owners. Small to medium businesses (employing up to 10 people and/or with revenue of up to €2m) would also be able to apply to the court for a suspension of repayments. By what logic should insolvent businesses be protected? Businesses facing solvency problems are not primary residences. The courts would be flooded with applications for suspension of repayments, causing an even bigger backlog of cases. Lawyers will certainly benefit as the law will generate plenty of new business (the irony is that it would not be the poor, unemployed home-owners that will go to court but those who can afford the legal fees) but what about the banks struggling to survive? Placing legal obstacles in their way as they try to reduce the crippling number of NPLs (50 per cent compared to less than five per cent in the eurozone) could negatively affect capital adequacy and further delay their return to normal.
If NPLs are not significantly reduced, our interest rates – the highest in the EU – will not come down. Banks will still have no funds to lend and the eagerly awaited economic recovery will not happen. What would deputies do next? Pass a law lowering interest rates (this has been discussed) and forcing banks to lend money they do not have?
Deputies must realise that their bill far from helping the situation would make things much worse and should be scrapped.
