RIGA - The Latvian government approved on Aug. 4 a set of assistance measures for people who have taken out loans and are running into trouble repaying them, or may already have defaulted, reports news agency LETA.
This assistance model provides that the state issues guarantees to banks if the borrower with a restructured loan gets into trouble again; the state will continue the monthly payments in the borrower's place, until completion of the program, or until the borrower becomes solvent again. It is hoped that with the state guarantee, banks will be more willing to restructure their troubled mortgages.
The director of the Financial Instruments Coordination Department at the Ministry of Finance, Ronalds Fisers says that "in order to carry out the program, from 6 million lats (8.5 million euros) to 32 million lats will be needed. Assistance could be applied to approximately 70,000 households, although input from the banks will be important."
Mortgages up to 100,000 lats will be included in the program. These persons must also have a mortgage on one home only, with the amount of other loans not exceeding 5,000 lats. After restructuring, the monthly loan payments by borrowers cannot exceed 40 percent of their monthly income.
According to the model, banks will have to restructure their loans, and block 20 percent of the principal loan amount, until the program's completion. After restructuring, the borrower's monthly credit payments cannot exceed the Euribor rate plus 2.5 percent.
If the state ends up taking over the borrower's payments, this will then be regarded as a loan, which will have to be repaid within ten years. The rate of this state loan will be 1 percent.
