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State should buy non-performing loans say experts

In efforts to protect primary residence from repossession without bringing more trouble on the banking system, a senior government adviser said the state should buy non-performing loans.

buy NPLs THE STATE should buy non-performing loans (NPLs) from banks and implement a mortgage-to-rent scheme, a senior government advisor said on Tuesday, as a way to protect primary residences and small business premises.

The matter was discussed during a meeting of the national council on the economy with President Nicos Anastasiades, which also looked into setting up a bad bank.

“What the president also agreed to is that we should not reject something before we know exactly what the consequences would be,” Christoforos Pissarides said, adding that studies were underway into the matter.

On protecting primary residences, Pissarides said they discussed a suggestion for the state to buy non-performing loans with the borrower remaining in the property and paying rent to the state, which will be the owner.

Pissarides said this solution could be used for specific sections of the population who cannot service their loans, like the unemployed.

“What we are trying to do is find a way to protect the primary residence without bringing more trouble on the banking system”, he said. “It is something difficult.”

Pissarides suggested that international lenders could contribute if the state could not afford such an endeavour.

He also suggested that non-performing loans could be bought by investment funds as long as people got to keep their homes.

“I do not see any risks provided there is assurance that the owner would not be thrown out of the house,” he said.

Pissarides warned that if banks were unable to use a house as collateral for a loan it would be a step backwards.

“We know very well that for the Cypriot economy to recover it needs healthy banks that can start lending to private individuals and businesses.”

Ruling DISY has managed to get an opposition bill protecting primary residences shelved for the time being.

NPLs – a key challenge

An International Monetary Fund report published last week argued in favour of facilitating asset seizures by banks as an effective remedy for spiralling NPLs.

The report diagnosed the issue of NPLs as a “key challenge” to the economy, reporting that they have reached 50 per cent of total loans – at €22 billion, or 135 per cent of GDP.

The IMF also called on legislators to put in place a “strong legal framework to facilitate foreclosures.”

Deputy government spokesman Victoras Papadopoulos said a sense of panic had been created that was not justified.

“No main residence foreclosure is expected to take place in the near future, no property recovery has taken place so far,” Papadopoulos said.

Papadopoulos said the government was preparing a series of bills to regulate the primary residence issue.

The bills concern the financial commissioner, rent for mortgage, and solvency of individuals and companies, an “exceptionally anachronistic” law.

Details will be announced in a few weeks, Papadopoulos said.

Readers' comments

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  • Costas Apacket says:

    So now it’s time to prosecute and asset strip their best mates, the lawyer infested Government are twisting and turning every which way to avoid what would be done in any other European open economy which is to call in all of the NPL’s.

    This rubbish about protecting first or primary homes is just a smoke screen to make the little mushrooms think that the Government cares about them instead of just their real mates the developers.

    However, if it does come to pass that the Government attempts to implement legislation to protect one part of the population whilst screwing the rest of us then I’ll get my trench digging gear out of the shed!

  • Divadi Bear says:

    I was told that certain properties owned by foreigners in mainly the Paphos area, where the buyers were recommended by a Cypriot lawyer to take mortgages from a Swiss Bank.

    When they fell in arrears with their mortgages, they were ordered to “pay-up” to the bank, or move out. The residences were re-possessed by the bank.

  • B.Whiffen says:

    This could be funny if it were not such a hair brain scheme, to protect primary homes the banks need to be forced to go after the developers for all the phony loans they received in the way of second and third mortgages on properties they had already sold.

    Another way they could help both banks and the lower paid is to initiate a housing association, financed from outside the banks, to purchase the unsold homes [even the unfinished ones] and let them at an economic rent, any difference between the price the banks receive for said property and what developers owe can then be pursued through bankruptcy courts [provided strict legislation is put in place first]

    One side effect from such a move will be to stabilise to some extent house prices by reducing the amount of new property on the market. Mind you this aspect will only work if the government reduces the number of new builds each year by at least 60% or the market will once again be flooded and turning us back to square one.

  • Robert Briggs says:

    @ Mr Mike, I think that the dirt is now hitting the fan over these NPL’s especially regarding the situation where innocent property buyers without Title Deeds are now being held responsible for their developers debts, ad nauseum.

    With this c**p that these Experts are now proposing, it sounds like something out of a Monty Python sketch.

  • Mike says:

    You just couldn’t make it up could you? Even if you were the best comedy writer in the world you would struggle to come up with this one. Now we have a new national game – getting shafted, a game for all the family. Not paying taxes is relegated to the second division. Are you certain Spike Milligan is not orchestrating this from beyond the grave, it certainly sounds like a Goon Show!

  • Gavin Jones says:

    It’s interesting to note that these hare-brained suggestions have exited the mouth of someone who’s been awarded the Nobel Prize for Economics. Enough said.

    He’s obviously never lived in the real commercial world where you start a business in ramshackle premises, hustle, hire, fire, live on a shoestring in order to get your enterprise off the ground, have sleepless nights, drive old bangers, sell your product and offer second to none after sales service, clean the toilets yourself, prepare and submit your own v.a.t. forms and all the other delights associated with running your own business. And not forgetting making a profit.

    People like Pissarides wouldn’t last 5 minutes if he had to actually roll up his sleeves and actually DO the above.

  • andyp says:

    I could be wrong but it would appear that first conned home owners will be asked to pay off our developer mortgages, our taxes will then be used to pay off the mortgages and loans of others who either can’t or choose not to pay and then our deposits will be bailed in to pay when the banks collapse.

    Sounds like a plan to me!

    Anyone want to buy a house? I am assured my deeds will be available, at some point.

  • Peter Davis says:

    The State doesn’t have any money. It raises it’s money from taxes.

    Why should my taxes being used to fill in holes dug by greedy bank, developers and lawyers? I pay my taxes to provide the State with fund to run the hospitals, schools, infrastructure etc. not to provide a comfortable living to inefficient businesses.

    It really is time for a multi-cultural set of MP’s in our Parliament, just like the UK instead of Cypriot only families. It’s time for some transparency.

  • Campbell Findlay says:

    This might mean that The State (the taxpayer) ends up paying the developers debts- we lose again!

  • Janner says:

    The normal practice is for assets to be reposed to pay off the debt of someone who can’t pay. All this talk about the government not wanting to throw peoples out of their homes is nonsense. They couldn’t give two hoots about the residents. This is all about them scratching their heads wondering what they are going to do about the mess they have created.

    They know the minute they go to repossess homes that people thought they had bought the system will grind to a halt. A legal merry-go-round will commence lasting for years which will show the Cypriot system as corrupt. They desperately want to avoid this by their very kind offer of choosing between paying the someone else’s debt or renting the debt on the property you thought you owned but actually don’t. Genius.

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

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