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MPs ignore warnings, freeze foreclosures (updated)

Parliament on Friday voted to temporarily suspend foreclosures on properties that could be eligible for inclusion in a state borrower relief scheme but also changed the foreclosures legislation despite warnings that it would have negative repercussions on banks and the economy.

Earlier, MPs rejected a proposal to postpone the vote on the two bills.

Finance Minister Harris Georgiades said he would ask the president to veto the bills, suggesting it had been a populist move by parliament.

“Today’s decisions by parliament may temporarily satisfy a section of the public opinion but they undermine the public interest,” the minister said on Twitter. “I will recommend to the president to veto the decisions in the hope that parliament would re-examine its decisions calmly and responsibly.”

The objective of the proposal according to opposition parties that supported it was the temporary postponement of foreclosure procedures relating to primary residences, which could be eligible for the Estia debt relief scheme that starts in September.

Opposition MPs argued that the suspension was necessary due to the uncertainty as to which borrowers would be eligible.

The opposition also approved changes to the foreclosures legislation that will make it harder for banks to collect their dues, possibly causing problems to the wider economy.

The law on foreclosures was amended in the summer of 2018 to make it more effective, some four years after it was passed by parliament with changes that essentially rendered it ineffective and unable to help banks reduce non-performing loans.

Up until then, the IMF, the European Commission and the European Central Bank (ECB), the troika of international creditors which supervised Cyprus’ 2013 bailout, had been calling for an amendment to the law to make it more effective.

Ignoring the warnings, opposition MPS amended provisions and, in essence weakening the banks’ ability to collect their dues at a time when supervisors are piling on the pressure for a reduction in bad debts.

Banking sources had suggested the amendments would essentially afford protection to strategic defaulters and possibly increase their numbers since foreclosure procedures would slow down or be weakened.

They fear that fresh capital would be needed since there will be changes in the valuation of collateral, as well as possible bank downgrades by ratings agencies.

Ruling Disy chief Averof Neophytou said his party would vote against the proposals because they were going to lead the economy and the financial system into fresh adventures.

House finance committee chairman, Diko MP Angelos Votsis, who had submitted the proposal on behalf of his party, initially supported postponement of the vote to give time for improvements to be made to the foreclosures legislation.

But he later said that they would support the proposals because there was mistrust towards the banks and courts must also take into account the central bank’s restructuring code. According to Votsis, courts so far have chosen to make decisions taking into consideration bank solvency.

Diko chairman Nicolas Papadopoulos said he had supported not putting the proposals to the vote since discussion at the House finance committee had not finished. However, since they went to plenum, he supported his proposal.

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