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Our View: The price of protecting mortgage defaulters could prove very costly  

File photo: People demonstrating outside the Presidential Palace against the foreclosures bill

THE FORECLOSURES saga that has been going for more than six years now took another twist on Wednesday when the Supreme Court ruled that two bills approved by the legislature but vetoed by the president were in fact constitutional. A third bill, that would have allowed the re-examining of loan contract clauses was ruled unconstitutional.

The bills offered people refusing to repay their loans on a primary residence a few more delaying tactics options. This had been the main objective of deputies since the first foreclosures bill was submitted in the House shortly after the economic meltdown of 2013. They always strove to make it as difficult as possible for a bank to repossess a property of a bad debtor, who was given all kinds of protections by the amendments made to government bills by the parties.

What was worse was the populist rhetoric of the parties that unanimously promoted the position that a bank should not be allowed to repossess the primary residence of anyone. This was licence not to repay a housing loan; if a bank lost the legal right to repossess a mortgaged property, why would the owner bother to repay a housing loan? There were people that had not even paid 10% of the value of the house they had bought and they were regarded as homeowners that should be protected from the banks even though they were not repaying their loan.

The bills referred to the Supreme Court by President Anastasiades were in this spirit, promoting the idea, legitimised by the parties, that a person not repaying a housing loan on a primary residence had to be given every possible protection, including the obstruction of the law through a host of so-called safeguards. Deputies never gave a second thought to this approach which, placed additional obstacles in the efforts of banks to lower their non-performing exposures (NPE), an imperative for a sound and healthy banking system and economy.

All the major organisations – IMF, World Bank, ECB, European Commission – for years have been urging us to lower NPEs, which despite having been reduced are still too high. Were they doing it because they wanted people to lose their primary residence? No, they were giving this advice because they believed that high NPEs put the banks and the economy at great risk. Now, the danger is that ratings agencies could view the upholding of the bills as a risk to the banks and lower their credit rating, which could create new problems for them. Is this a price worth paying for protecting people that are not repaying their housing loans?

 

 



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