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EU Mortgage Directive - High Efforts to disguise that the Implementation of the Draft Consumer Credit Directive from 2002 would have solved the regulatory problems best.

The EU has delivered its draft for a mortgage regulation which has been successfully prevented for 20 years by effective lobbying. The mortgage industry is still the part of finance with little to no harmonisation in the EU. All attempts failed to harmonise the securities, to give access to foreign suppliers, to use online facilities for cross-border banking and to stop exorbitant early repayment charges which hinder competition. The 2002 credit regulation attempt seemed to provide a big step forward tackling all major problems like early repayment, a realistic APRC, refinancing, open-end credit as well as the shadow market of endowment credit. The most vulnerable part for lobbying was the European Parliament who smashed years of thorough work on mortgage regulation within three months. The 2008/48/EU Directive was the worst example of consumer protection with significant drawbacks on the 1987 CCD. Anyhow it would still be much better to apply this drawback to mortgages than repeat mostly the same rules in an area which is ever less distinguishable from consumer credit than before as the Subprime Crisis has taught us. Instead the Mortgage Directive refers to the other Directive, repeats its errors in the definition of the APRC and fails to regulate second mortgages effectively which now seem to escape both Directives. No word about the scandals of combined products where consumers were lured into capital life insurance for the repayment of their debts and finally left with a high debt load although they were promised a debt-free life at the end. There is no mention of open-end situations, the trapped indebted consumer who without rights lives at the mercy of the lender and nothing is said about the sale of mortgage contracts and the right of consumers to stay with the chosen lender as it was at the origins of the financial crisis.

Again the European Parliament interferes with hundreds of small changes which to some extent again show the handwriting of the same lobbyist which destroyed the intentions of the 2002 draft. Certainly there is much rhetoric especially in the recitals where now consumer protection again is acknowledged while the prevention of overindebtedness has still not got its entrance into the text. There are bright intentions but the techniques of its implementation show the expert reader of the provisions that changes and true market regulations are not wanted. We will pay a high price for this lack of capability and expertise at the European Parliament level when the next mortgage bubbles burst. House prices still sore in many countries facilitated by a spiral of additional credit and higher prices. The actual low interest rate period is due to an inundation of new money which we should cut in the future to those amounts which are healthy for the economy by giving the risks to those who incurred them. But if this happens, interest rates will rise and overpriced and over financed mortgage markets will collapse. The price will be paid by those classes who can already today hardly afford the speculative cost of housing.

ECRC partner iff has not been invited to any parliamentary hearing. No money has been spent by the Parliament to get the necessary expertise so that its deputies who show their willingness to end bank lobbyism in Brussels would at least be able to put this into practice. We annex a very short commentary and would like to point to our previous alternative draft for a consumer credit Directive which until today alone provides a basis for what could be called a regulatory answer to the financial crisis where responsible and productive credit would be the sound foundation of speculative money markets. See comment here and the attachments below. 

Latest ammendments to the draft CARRP proposal

2 Parliament committees have made totally different amendments to the MCD now referred to as CARRP:

ECON completely changes the directive (scope, principles etc.. written from the experience of the Spanish rapporteur (includes property valuators…adds LTV LTI limits which should be regulated within the CRD IV and the single rule book). Some good ideas from our consumer perspective but goes too far.. See previous ECRC comment on the ECON report: here  

The IMCO (consumer) report published recently is from the German rapporteur Lechner, a party fellow of CSU rapporteur Wuermeling who was the initiator of the 2004 changes of the CCD and is now serving as a lobbyist to the financial services industry. Lechner was in charge when the Parliament passed the lender friendly CCD without the necessary reopening of the discussion arguing that the first reading had already been accomplished by the old Parliament before the EU-elections. Lechner keeps the draft as proposed only making the text consistent with the CCD but also removing consumer friendly provisions and ambiguities (e.g. removing "best interest of client", "warning of risk of losing property" in material, advertising and ESIS, "ability to get access to credit databases and rectify mistakes", "no specification of the Commission empowered to stipulate professional indemnity insurance", "obligatory opening of an account to obtain credit", " creditworthiness on the basis of criteria including consumers' income, savings…."; "reasons justifying rejection of a credit", "the obligation on the creditor to carry out a manual review of creditworthiness if automated says no"; "..ensure sufficiently large number of credit offers compared, …based on financial needs etc.." see Am.73; "creditor obligation to specify info and evidence that the consumer needs to provide (responsible borrowing)"; "ensure that the competent authority discloses to the public any measure or sanction imposed for infringement of provisions.."(am83 - no name and shaming)

But it also makes the following positive changes: 1) it clarifies the information duties and points to endowment products (am.54); 2) it clearly stipulates that equity release (not ERS but re-mortgaging) is to be covered by the CARRP e.g. even when it is credit line when this is secured by property (like the home equity line of credit HELOC in the US or as we found to especially exist in the Netherlands from our ERS study) (am28); 3) removes the statutory ban on extending credit if credit check says no (am68); stipulates that intermediaries should inform the consumer if they are considering only their own range of products (am79); also removes the provisions that made consumers liable if they produced false information (am82); replaces the term "exit charge" with "compensation" for ESIS ERP; and specifies that the APRC could significantly exceed the fixed rate APRC after the agreed initial period (for German case of ARM) (am100).

Notes:
1) To be aware of the positive elements of the Consumer Credit Directive (CCD) draft from 2002 (APR, Refinancing, intermediaries and combined products) which were subsequently dropped in the 2004 version see German version or English version; 2) At this link http://www.iff-hamburg.de/pdf/Konferenz_Report_2011.pdf you can find the 2011 ECRC conference report (Hamburg 2011, Minutes of the Mortgage Worksop pp.47-57).


ID: 47726
Publication date: 13/10/11
   
 

Created: 14/10/11. Last changed: 14/10/11.
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