Romania’s central bank proposes radical changes to mortgage loans bill

By bne IntelliNews February 15, 2016

Romania’s central bank has submitted to parliament a list of proposed amendments to the bill on limited liability on mortgage loans, reported on February 12.

Under the bill, if mortgage borrowers are unable to make repayments or want to terminate their mortgage for any other reason, they can give their collateralised properties to banks and have their debt written off. The amendments would make the bill nearly irrelevant since the law would be applicable only to future contracts, under very strict circumstances. There are also loopholes that would allow banks to avoid the law.

The draft law has been strongly criticised by both commercial banks and the Romanian central bank, which fear it could damage the mortgage lending market.

However, the bill’s initiator, MP Daniel Catalin Zamfir severely criticised the proposed amendments as being biased in favour of banks.

The controversial bill was approved by Romania’s two main parties last autumn, but returned by President Klaus Iohannis to lawmakers in December. The parliament is expected to discuss the bill this week, and Zamfir expects it to be endorsed with amendments by the end of March.

The central bank cannot propose amendments to a bill; an MP has to formally submit them for further approval by lawmakers. No political party has backed so far amendments of the type put forward by the central bank, and it is unlikely that any of them would take the risk of losing voters’ confidence in a year with local and parliamentary elections.

Under the proposed amendments, only those who live in the house serving as collateral (or their close relatives) will be able to benefit from the law. Only loans of under €150,000 are subject to the bill, and only if mortgage repayments account for more than 65% of the debtor’s income.

Under another key proposed amendment, the bill would not cover loans extended under preferential terms, i.e. better terms than the bank's standard offer. This opens the door for the banks to avoid the bill by setting tight lending terms officially while giving small individual discounts.

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