Will foreclosures plague 2023?

There is a race against time, with only a few weeks left to address the issue of foreclosures and enhance the framework. On one hand, the government holds the political leverage to rally parties behind the package to be presented on Thursday, which comprises two bills and two law proposals. On the other hand, at the technocratic level, banks, credit buyback firms, the Ministry of Finance, and the Central Bank of Cyprus will deliberate on the bills and law proposals to be submitted to the Finance Committee on Monday. The clock is ticking, and there is limited time to prevent first-home foreclosures, making necessary improvements for all.

The four-point foreclosure package set for presentation on Thursday essentially narrows down to three key changes: the establishment of a special court, defining the role of the Financial Commissioner, and the introduction of a "CBC mechanism."

During the summer, there were discussions about seven potential changes in the foreclosure framework. Among them, two law proposals were approved, one proposed by AKEL involving the exchange of debt for real estate with price protection and another proposed by DISY aimed at providing detailed borrower information. The other five changes under consideration included the special court, Edek's guarantor proposal, enhancing the financial dispute resolution body's powers, the Diko – Dipa – Edek mechanism (commonly known as the central bank mechanism), and a contentious proposal from AKEL regarding challenging the debt amount before the sale.

In practice, the upcoming four-point foreclosure package effectively focuses on three changes: the government's proposal for a special court, clarification of the Financial Commissioner's responsibilities also suggested by the government, and a law proposal from Dipa – Diko – Edek for the mechanism, often referred to as the central bank mechanism (although not precisely). Insiders indicate that technocrats are generally in favor of the special court's establishment, provided it functions effectively. However, there is debate over expanding the powers of the Financial Commissioner, and there is opposition to the "mechanism" due to its provisions for suspending sales. The fourth law proposal emphasizes time limits and expands the Financial Commissioner's authority for out-of-court dispute resolution within 45 days, focusing on disputes between mortgage lenders and debtors concerning the declared amount in the "IA" notice for the sale of primary residences valued up to 350 thousand euros.

With just six weeks remaining, there's a sense of urgency to discuss the bills and law proposals slated for presentation next Thursday, addressing the foreclosure framework. Parliament must work swiftly to tackle this critical issue, aiming to protect and enhance it. However, there is concern about last-minute developments, and it remains uncertain whether Parliament will accept the proposed changes.

With their finger on the trigger, MPs may opt for another suspension of primary residence sales worth up to 350 thousand euros if they feel that time is insufficient. This follows the current practice. There's a possibility of further delays in implementing the framework, and this time it might be Parliament itself rather than banks and credit buyback firms voluntarily suspending sales, as was done during the pandemic.

In summary, the situation unfolds with banks and credit buyback firms desiring a swift and efficient conclusion to the debate to prevent unexpected suspensions by Parliament. The government seeks to demonstrate its commitment, albeit belated, to the cause, while the opposition aims to achieve the best possible outcome.

The issue of non-performing loans has significantly burdened banks, affecting their future lending capacity. Without a robust foreclosure framework, banks have conveyed a cautious message about more expensive borrowing and increased collateral requirements for borrowers. As of the end of August, non-performing loans in banks amounted to 2.08 billion euros, down slightly from 2.1 billion euros at the end of July, with provisions for problem loans reaching 52.5%. Loans with arrears of over 90 days stood at 1.66 billion euros, accounting for 6.8% of total loans.

From 2017 to 2023, there has been a substantial reduction of 18.5 billion euros in problematic bank loans, representing an 89.7% decrease. This was primarily due to the sale of loans to credit buyback companies (servicers). Recent data in Parliament revealed that these companies held a total of 22.5 billion euros in problematic loans by the end of March 2023, with 93% of these loans being more than 5 years overdue. Of these, 84% were for terminated loans, and only 16% remained active.

[This article was translated from its Greek original]