By Elias Hazou
THE FIRST parliamentary discussion of the contentious foreclosures bill hit appeared to hit a blind alley on Monday, with all opposition parties reiterating that the legislation as it stands cannot pass.
The debate – set to be a protracted one – resumes on Tuesday at a second joint session of the House finance and interior affairs committees.
After Cyprus’ international lenders snubbed a series of proposed amendments aimed at softening the perceived impact on mortgagors, Interior Minister Socrates Hasikos tried again to put things into perspective.
“No one would like to see us slip into internecine strife. Whether we agree among ourselves matters less than what we agree upon is acceptable to our lenders,” he later told reporters.
The minister reiterated that the next tranche of bailout cash hinges on whether the legislation passes prior to the next meeting of euro area finance ministers. The Eurogroup, as it is known, is scheduled for September 12 to 14.
A new stumbling block – and following the troika’s chilly response – is the parties’ demand for an insolvency law to be submitted in tandem with the foreclosures bill. The insolvency law is to contain a number of safeguards against the forced sale of so-called primary residences, but the government says it needs more time to work the bill due to its complexity.
Parties are apparently wary that the government may fail to bring the insolvency law once the foreclosures item is passed on its own. Under the foreclosures item, primary residences are exempt from seizure and auction, but only until January 1, 2015.
Ruling DISY is reluctant to buck the trend and come out openly for the bill unless it can first get DIKO on board, mustering enough votes in the plenum.
But a consensus with DIKO appears unlikely for the time being.
“With the proposed bill, the administration of Nikos Anastasiades intends to tip the balance between lenders and borrowers in the banks’ favour,” DIKO leader Nicolas Papadopoulos said in a written statement later.
It would be up to a bank’s total discretion to decide which bad debts should be restructured and when, and which mortgaged properties go under the hammer, he said.
“There is no safety net whatsoever. Today the ministers of finance and of the interior referred extensively to the insolvency framework. But this we do not have before us. What we do have is only a proposal to expedite the sale of mortgaged properties,” Papadopoulos added.
During Monday’s parliamentary discussion, Finance Minister Harris Georgiades sought to allay concerns that mass foreclosures would immediately follow passage of the bill.
On the contrary, he said, the chief aim is to rationalise the current system which due to red tape is too time-consuming when it comes to banks recovering mortgages that have fallen by the wayside.
Georgiades pledged that overhauling the laws would differentiate between borrowers who genuinely cannot afford service their debt and those who are abusing the system.
Tackling the high level of banks’ non-performing loans would go a long way toward addressing a longstanding problem – that of excessive private debt and the property bubble, caused by easy credit especially in the years 2005 through 2008.
Weighing in, the interior minister spoke of foreclosures cases that have been pending for 20 years, tied up in bureaucracy at the land registry and delays in a sluggish courts system. Hasikos cited one auction case pending at the land registry since 1973.
The land registry is the only body authorised to carry out forced sales of mortgaged property in Cyprus.
The procedure is delayed further when, in an attempt to postpone the sale of their property, mortgagors habitually obtain court orders for the cancellation of the auction questioning the reserve price set by the land registry.
Instead, under the proposed foreclosures bill, the auctions will be carried out by the creditors. A forced-sale procedure kicks in when the debtor defaults for at least a month. The borrower is given a month’s grace to repay the loan.
Hasikos pledged moreover that the government is preparing a scheme enabling people unable to keep up with their mortgage payments to continue dwelling in their home as tenants.
Under the scheme, the state will buy from the banks houses that are up for seizure.
The scheme will be implemented via the Cyprus Land Development Corporation (KOAG), a public-law corporation that is under the jurisdiction of the interior ministry.
Moreover, those eligible and who apply for the programme will also be given the opportunity to buy back their real estate property after five years.
Central Bank governor Chrystalla Yiorkadji, also attending the discussion in parliament, conceded that commercial lenders have been slow in conforming to a decree obliging them to actively engage with borrowers in restructuring delinquent loans. This delay in renegotiating potentially recoverable loans has in turn led to an increase in debt tagged as non-performing.
But she said that banks needed time to set up dedicated loan restructuring units and to train personnel, adding that this was now picking up steam.