RIGA - The Latvian Justice Ministry’s proposals regarding improved borrower protection are based on unverified information, and some of them may even be considered populist, the Association of Commercial Banks of Latvia Chairman Martins Bicevskis told the Nozare.lv business portal.
The Justice Ministry’s task force has established several shortcomings in the laws and regulations that deal with mortgage lending, which affect borrowers. In order to improve borrower protection, the Justice Ministry proposes that a new law on mortgage lending be drafted and that a new chapter be added to the consumer lending regulations.
According to the task force’s findings, borrowers who take out a mortgage loan for the purchase, repairs or renovation of their only home are the most vulnerable at the moment.
The Association of Commercial Banks supports the development of a legal framework for mortgage lending; however, the association also believes that Latvia should not be rash and wait for the European Union’s pending directive on mortgage lending first. Second, the regulations on mortgage lending must be separated from the consumer lending law, because these are two distinctively different areas.
Bicevskis reiterates that borrowers are not the only clients of banks, and that depositors’ interests must also be protected.
The Justice Ministry’s proposals regarding “disproportionate” guarantees that borrowers must present to lenders, these proposals are completely unfounded and not based in any analyses or statistical data, said Bicevskis.
The Association of Commercial Banks believes that the Justice Ministry must carry out serious analysis of the situation and statistics, and only then draw conclusions. The association believes that the current guarantees that borrowers are asked to present are proportionate, as banks must balance out interests of borrowers and depositors.
The Association of Commercial Banks does not have full statistics on all aspects of mortgage loan applications that are turned down by banks, but the association does have information that the main reason for rejected applications is that the applicant does not have enough money to make a down payment - which is what happens in 40 percent of refused applications, said Bicevskis.
Insufficient income accounts for 25 percent of such cases, unverifiable income about 25 percent, and poor credit history 10 percent.
People are rather cautious, having experienced the property bubble, and they do not want to take on new obligations, while banks are fully prepared to issue loans for quality projects, added Bicevskis.