Friday, 13 September 2013

One step forward towards a mortage credit directive

On Wednesday, the European Parliament gave broad support to the pending proposal for a Mortgage Credit Directive, which, if everything works according to plans, should come into force in the spring of 2014. 

While not all loan-seekers will be enthusiastic with this intervention, the directive is aimed at two quite important objectives:
1) facilitating the creation of a single market for mortgage loans;
2) preventing the recurrence of crises in the housing market such as the ones that hit fiercely Spain and Ireland over the last few years.

How should these objectives be achieved? 

First, and this is the part credit consumers might be worried about, the Directive introduces European standards for creditworthiness assessments: the effect of this on consumers is likely to vary according to the state where they live. At the same time, better information and decision-making are pursued by the introduction of a standard information sheet, which should make comparison easier, and a 7-day reflection period. 

The directive also foresees a general right to early repayment, which the member states might subject to the payment of a fair compensation to the credit provider. 

As concerns brokers and intermediaries, while the directive  imposes a set of rules of conduct (concerning inter alia pay structure and the obligation to provide prospective lenders with "worst-case-scenario" information) meant to prevent conflicts of interests and encourage "fair" lending practices, new chances will be provided by the introduction of a "pass-porting regime"- i.e. the chance of seeing one's trade authorization recognized in the whole Union. 

The directive also introduces "good practices" on the sensitive issue of arrays and foreclosures, encouraging banks to consider their debtor's position carefully before undertaking irreparable actions and asks states to make sure that incorporation of the asset takes place at "best effort" price. 
In addition, national rules of contract law might have to be adapted to provide parties the possibility to stipulate that "returning" the collateral- the house- will suffice to extinguish the debt. 

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