Government presents foreclosures package

Finance Minister Makis Keravnos will present a government package of seven proposals to address the issue of foreclosures to legislators on 10 July, in a bid to prevent an opposition-backed law from being approved.

MPs are trying to push for a law that will give non-performing borrowers the right to appeal to Court to suspend a planned foreclosure, if they plan to dispute the outstanding value of the loan as well possible excessive charges.

The Finance Ministry, Central Bank of Cyprus (CBC) and Association of Cyprus Banks have warned that such a law would obstruct efforts to reduce non-performing loans and subsequently weigh on the state’s credit ratings.

The government’s package was submitted to the House on 6 July, just ahead of a plenary vote on the proposed law, which was tabled by left-wing AKEL, and co-signed by far right ELAM, the Green Party, as well as members of government coalition parties DIPA and DIKO.

The Plenary decided to postpone the vote for a week and refer the proposal back to the Finance Committee, along with another proposal tabled by Social Democrats EDEK providing that collateral should be auctioned based on the estimated value when the loan contract was signed as opposed to the reserve value.

Meanwhile, the Finance Committee will hold a joint meeting with the Legal Affairs Committee to examine a government bill providing for the creation of a special jurisdiction in District Courts, to examine financial disputes between borrowers and the holders of loan contracts (banks and credit acquiring companies) concerning loans collateralised with primary residences with a value of up to €350,000.

It will also discuss a legislative proposal submitted last week which grants the right to home owners, under certain conditions, to appeal to the Court and obtain an order postponing a planned auction. The proposal, which essentially introduces a mechanism initially proposed by the CBC, also concerns loans collateralised by primary residences with a value of up to €350,000.

Apart from the special jurisdiction in District Courts, the government package, among other provisions, features a voluntary suspension of foreclosures of primary residences up to €350,000 agreed by both banks and credit acquiring companies until the end of October, the strengthening of the Financial Ombudsman, a new ESTIA scheme for borrowers in trouble with revised criteria with a view to include more home-owners, as well as a new scheme called mortgage-to-rent aiming to support vulnerable non-performing home-owners with a state subsidy and protect them from losing their homes.

Speaking to the press on 9 July, Government Spokesperson, Konstantinos Letymbiotis said the government package could effectively and comprehensively address the issue of foreclosures, while assisting vulnerable borrowers and averting strategic defaulters to exploit the procedures.

“We trust the responsibility of the political parties that they will evaluate the consequences of their decisions, they will rise to the occasion and will understand that a wrong decision over a horizontal suspension of foreclosures will yield very negative results to the whole of the economy,” he added.

According to CBC data, non-performing loans declined significantly from €20.6 billion in end-2017 to €2.2 billion in March 2023. However, a large part of these delinquent loans have been transferred to credit acquiring companies and continue to weigh on the economy.

(Source: CNA)