“P” presents today the details of the “Rent against loan installment” plan, which the government is negotiating with the European authorities, in order to give a practical solution to the problem of protecting the first home of vulnerable and / or unsustainable borrowers.
A problem that has short-circuited the sale process and gives space to strategic defaulters to avoid repaying their obligations.
The idea is for borrowers with a non-performing loan, mortgaged with a first home or business worth 350,000 euros, to maintain the use of the property by paying a predetermined rent. At the same time they will have the right of redemption.
This is the continuation of the Hestia project which did not achieve the purpose for which it was designed. Despite the fact that the applications had risen to 6,389 and represented MES amounting to 1.9 billion euros, 30% of the applications were not properly completed and 60% were rejected. Of the rejected applications, 14% were rejected because even with their participation in the project they did not have the conditions to make the loans viable. Most striking, however, is the fact that 30% of applicants for the project did not meet the financial criteria to participate, indicating that they belong to the group of strategic defaulters and simply applied to avoid the sale process. Eventually, out of the 1.9 billion euros of non-performing loans that Estia was expected to cover, restructuring loans worth 170 million euros will be eligible, ie about 10% of the initial amount.
The role of KEDIPES
Supervisors, the European Union and the International Monetary Fund have commented positively on the existence of the “Rent for loan installment” plan.
“Properly designed, state-sponsored solutions that promote the sale of NPLs can complement the efforts of the banks themselves, offering additional options for faster response to NPLs,” Elizabeth Macol, a member of the Supervisory Board, told KYPE. ECB, asked about the plan to transform KEDIPES into a National Asset Management Company. The key to adopting the conversion is to ensure that KEDIPES, with its new role, will operate on market terms and make decisions based on commercial criteria.
The Ministry of Finance discusses with the competent Directorates-General of the European Commission the evolution of KEDIPES, so that it can, under certain conditions, proceed to the purchase of non-performing loans from one or more credit institutions, or from other credit repurchase companies. The goal is for KEDIPES to buy by 2023 from banks, but also credit repurchase companies, loans amounting to approximately 1.5 to 2 billion euros, an intervention that will substantially limit the level of NPLs to a single digit percentage. It is noted that at the end of 2020 the MES index was at 17.7%, from 28% in December 2019.
More specifically, KEDIPES with the receipt of the relevant approvals will be able through its cash from its operations (restructuring, real estate sales, loan sales, etc.), and under certain conditions, to buy MEX of the banks for a period of three years.
(a) The loans that KEDIPES will be able to buy should have been MEX on the banks' balance sheets on 31/12/2019.
(b) The loans will be purchased at their market value based on relevant estimates.
(c) The contingent loan purchases will relate exclusively to loans secured by the first home or the first business premises, with a maximum market value of the collateral of € 350,000.
«Mortage to Rent»
Simultaneously with receiving the relevant approvals, the “Mortage to Rent” plan will be run, which is being elaborated by the Ministry of Finance in collaboration with KEDIPES.
In the first phase it will concern loans managed by KEDIPES (ie the former Cooperative) and in the second phase the loans that will be purchased by KEDIPES.
The characteristics of the project are as follows:
- Beneficiaries are individuals with loans secured by their first home or their first professional home with a market value of up to € 350,000, which were “red” on 31/12/2019, regardless of whether or not they participated in any government projects.
- KEDIPES will acquire the properties at 50% to 60% of their market value, with the remaining amount of the loan, which is attached to the property, being written off.
- In parallel with the acquisition of the property by KEDIPES, a rental contract will be signed with an annual rent of between 2% and 3% of the market value of the property, depending on the tenant's condition, which will be adjusted at regular intervals. on the basis of a specific formula to be decided.
- In the event that the owners and residents of the property on 31/12/2021 are over 65 years old, they will reside in the residence for life, provided that the relevant rent is paid.
- All those who participate in the plan will have the opportunity to repurchase their property within 5 years, at the value of its acquisition by KEDIPES minus any rents paid. The first degree of kinship of the owners (children, father / mother) has the right of repurchase based on the same conditions.
- After the end of the period of 5 years, KEDIPES will be able to sell the property.
- After the first 5 years, the owner has the first right to purchase the property at the offer price that KEDIPES has from an individual.
- The annual rent for certain categories will be paid by the Republic (as well as any increases). The categories covered are the categories of vulnerable groups, as they are defined in a relevant decision and decree of the Minister of Energy, Trade and Industry, which are issued based on the provisions of the Law on Regulation of the Electricity Market (Law 122 (I) / 2003 ).
- For the other categories, the annual rent will be between 2% and 3% of the market value of the property and will be paid by the tenants.
- The plan will be applicable in cases where KEDIPES recovers the property through the sale process, but in this case the former owner has no right to repurchase.
Pressure from institutions
The European Commission, the European Stability Mechanism, the European Central Bank and the International Monetary Fund have in recent days sent clear messages about the need to reduce non-performing loans (NPLs) which remain high, while the risk of a new generation of NPLs has not been removed. pandemic.
The MES index stood at 17.7% in December 2020, having decreased by almost 10% from 28% in December 2019.
The common denominator of the four institutions is not to disturb the framework for sales, which is considered necessary for the restructuring of the remaining stock of NPLs, the vast majority of which concerns cases to 2016.
ECB. Supervisory Board member Elizabeth Macol was clear in speaking to KYPE: “If the framework (for divestitures) is designed lightly, it could have the opposite effect, destabilizing the banking sector.”
“The reversal of divestiture reforms should be avoided and if this is not done it will hinder the continued decline in NPLs, posing risks to financial stability,” the IMF said, noting that as the Estia project nears completion, Banks should consider accelerating sales for non-performing borrowers who did not apply for the plan.
At the same time, the Cypriot authorities will have to secure additional burden-sharing measures or develop support measures for borrowers deemed unsustainable under the plan. This is a suggestion that is answered with the plan to convert the installment into rent for a specific category of loans and borrowers.
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