Estonian lawmakers prepare bill to curb borrowers’ liability
02.02.2010, 14:53Estonian lawmakers are preparing a draft bill to limit the liability of insolvent mortgage borrowers to the value of the collateral and prevent the spread of poverty in Estonia, writes Bloomberg.
The bill is due to be submitted to parliament by late February or early March and may be passed by the middle of summer, Hannes Rumm, an opposition Social Democrat member of a parliamentary working group preparing the draft, told Eesti Rahvusringhaeaeling public broadcaster in an interview today. There is a “rare consensus” among coalition and opposition lawmakers on the legislation, he said.
“If the borrower becomes insolvent and his house is mortgaged to the bank, then the bank can sell it and if the house value has meanwhile declined, the people are literally thrown into poverty as they lose their houses and still have to repay large parts of their loans,” Rumm said. “The state has to interfere in such situations.”
The draft follows initiatives by opposition Center Party and the Social Democrats in September, proposing to limit borrowers’ liability to the value of the collateral and to ban lenders from requiring additional collateral if the market value of the property has fallen. Neighboring Latvia’s government proposed similar changes on Oct. 6, drawing criticism from Swedish and European Union officials, as banks operating in the country risked larger losses.
In October, Finance Minister Jurgen Ligi said the ruling Reform party won’t back any plans to change liability rules for borrowers retroactively or in future.
About 14% of Estonian residents, or some 182,000 people, hold a mortgage, according to a survey of consumers by GfK conducted last April for the Center Party. About 4.2% of mortgages were overdue by the end of December, the central bank said last month.
The legislation may also limit the period an individual is liable to repay debt, including non-mortgage obligations, to three years from five, Rumm said.