Proposal for Directive on Credit Agreements for Residential Property

1. Proposal for a Directive of the EP and Council on credit agreements relating to residential property Mr. Gabriel Alonso, ELRA Secretary General

2. I. Context:EU mortgage market: €6 trillion = 50% of EU GDP. POLICY OBJETIVES: • For EU citizens: benefits of a more efficient internal market; increased competition and choice in mortgage credit offers (customer mobility). A high level of consumer protection throughout the EU. • For lenders: benefits from economies of scale creating conditions for a level playing field in this area. • Promote financial stability by ensuring that mortgage credit markets operate in a responsible manner. XIV ELRA General Assembly - Tallinn, 2nd December 2011

3. III. Scope of the Directive.- (Article 2) • (a) Credit agreements which are secured either by a mortgage or by another comparable security commonly used in a Member State on residential immovable property or secured by a right related to residential immovable property. • (b) Credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected residential building. • (c) Credit agreements the purpose of which is the renovation of the residential immovable property a person owns or aims to acquire, which are not covered by Directive 2006/48 XIV ELRA General Assembly - Tallinn, 2nd December 2011

4. II. Topics addressed by the Directive : • Pre-contractual information.- Revise European Standardized Information Sheet for Home Loans (ESIS) • Advertising and marketing.- Accurate, fair, clear and not misleading • Advice.- Applying high level advice standards XIV ELRA General Assembly - Tallinn, 2nd December 2011 4

5. II. Topics addressed by the Directive : • Creditworthiness assessment.- Complete and correct information on the borrower. Non-discriminatory access to national credit registers : data protection • Suitability assessments.- To assess whether or not the borrower has the capacity to repay the loan, but also whether the features of the loan are suitable for him • Credit intermediaries.- Common EU legislative framework. XIV ELRA General Assembly - Tallinn, 2nd December 2011 5

6. IV . The decision-making procedure: EP amendments • The EP is widening considerably the scope of the Directive suggested by the Commission initially by extending its provisions to areas related to the loan contract itself that impact on certain aspects of the collaterals, the mortgage. • Main groups of measures with impact in EU LR: A).-Flexibility B).- Transparency and reliable markets XIV ELRA General Assembly - Tallinn, 2nd December 2011 6

7. A) Flexibility • 1. Portability • 2. Switching of creditor • 3. Switching of borrower • 4. Foreclosure • 5. Reflection period XIV ELRA General Assembly - Tallinn, 2nd December 2011 7

8. A) Flexibility - Portability • “Member States shall ensure that lenders allow borrowers to keep a credit agreement when moving house; and…shall adopt the measures appropriate to ensure that where under national law a credit agreement related to a residential immovable property located in another Member State is considered as equivalent to a credit agreement related to a residential immovable property on its territory” • Portability means: keeping the crerdit agreement while moving the mortgage from one immovable asset to another, from one country to another? • Possible problems: Constitutive effect : priority Equivalence: Different rank, different types of mortgages, procedural rules, hidden charges • Solutions: MS can smooth thre process:reducing costs and taxes XIV ELRA General Assembly - Tallinn, 2nd December 2011 8

9. A) Flexibility - Switching of creditor • Creditors may transfer credit agreements or portfolios of credit agreement to other financial institutions: mortgages portfolios are transferable to a new lender without registration of a new mortgage deed for each loan in the transferred portfolio. • PROBLEMS and SOLUTIO NS: First creditor remains entitled to the credit in the LR Formalities: deed of transfer. One single deed Chain of tittles: foreclosure or discharge. • Consumers also have the right to transfer a credit agreement to a new creditor which is prepared to accept the transfer and which makes a binding offer to the consumer XIV ELRA General Assembly - Tallinn, 2nd December 2011

10. A) Flexibility • Switching of Borrower - MS should allow the transfer of the loan from the borrower to the consumer when it were transferred in parallel to the sell of the property. Measures to prevent developers from tying the sale of a projected or existing property by making it conditional upon the transfer to the consumer of a credit agreement if it were transferred to the consumer. • Foreclosure -Member States shall ensure that creditors exercise reasonable forbearance and make diligent efforts to reach a negotiated solution before initiating foreclosure proceedings in relation to credit agreements • Reflection period -  Reflection period: consumers should have a time to compare offers and ask for advice. The report allows flexibility as to whether this is before or after conclusion of the contract, or a combination of the two. XIV ELRA General Assembly - Tallinn, 2nd December 2011

11. B) Transparency and reliable markets • Traceability: - European Mortgage Key Identifier - Registers of Credit agreement related to residential immovable property • Valuation of residential immovable property • Property Indices • Special risk credit agreements XIV ELRA General Assembly - Tallinn, 2nd December 2011

12. B) Transparency and reliable markets - Traceability • The crisis has shown the importance of ensuring the traceability of rights in residential immovable property: link between the loan and the mortgage • European Mortgage Key Identifier.- ( Am 147).- A EMKI should be allocated to new credit agreements ensuring that the link between the loan and the property can be identified in primary and secondary markets. An EU LR mortgage / plot Identifier? EMKI incorporated to the mortgage entry? • Registers of Credit agreement related to residential immovable property.-(Am 148) Could it be the LR? Could it be thecreditor´s? Risk: MERS Permanent exchange of information.- Rank, cancellation, restrictions... XIV ELRA General Assembly - Tallinn, 2nd December 2011

13. B) Transparency and reliable markets • Valuation of residential immovable: Both creditors and consumers have an accurate and impartial valuation of the property. Valuation standards are proposed. • Property Indices: MS shall promote the use of indices of residential immovable property prices at national, regional and local level in order to provide an improved basis for the monitoring of trends in valuation of residential immovable propert: LR statistics • Special Risk Credit Agreements • (a) credit agreements where the loan is granted in a foreign currency; • (b) credit agreements which allow for significant variation in interest payments during the term of the agreement; • (c) credit agreements where it is agreed between the parties that the return of the collateral will be sufficient to repay the loan XIV ELRA General Assembly - Tallinn, 2nd December 2011

14. CONCLUSION: • Initiative that must be followed up: the goals are clear whether they will come through this instrument or another • Credit agreements are always linked to a mortgage. • Mortgage exists to the extend of its registration in the LR. • European LR must: • Provide legal input and expertise advice during the decision making process: identifying problems and proposing solutions • Cooperate in the implementation of the measures adopted for the achievement of the goals : transparency and flexibility XIV ELRA General Assembly - Tallinn, 2nd December 2011