Banks will now be able to break up a mortgage into various parts. Previously, where a bank held property as collateral that covered multiple loans – for instance one housing and one consumer loan – they were unable to split the two.
Now, if a bank wants to sell off the consumer loan only, it can contact the land registry and inform it that such-and-such amount concerns the consumer loan and the remaining amount concerns the housing loan. This will then allow the financial institution to sell the loan to a third party along with its collateral.
In addition, the time period in which notices are sent out for immediate repayment of outstanding loans is curtailed; and the notices will be sent by registered post.
Up until now, a provision in the legislation had allowed a borrower who felt wronged to take recourse to a court within 30 days of receipt of a final notice from the bank. This recourse would stop foreclosure proceedings in their tracks. The provision has now been deleted, so that foreclosure proceedings may only be halted if a court order has already been issued.
The new laws also introduce e-auctions.
Regarding collateral, banks had been unable to sell off loans on their books because of issues with the land registry. Previously, when a bank wished to transfer/sell a loan they had to visit the land registry in order to be able to transfer the mortgages one by one.
Now, with the changes to the law, all the benefits and obligations of the borrower are likewise transferred, so that the borrower whose loan has been transferred can still make use of the insolvency framework.
If the bank has initiated legal action against the borrower, then the transfer/sale of a loan to the buyer does not change anything – the same procedures continue to apply (legal action and so forth).
Moreover, buyers of loans will have full access to all documentation pertaining to a loan in order to be able to properly assess their prospective purchase.
The bills also introduce offsetting where a loan is to be sold. For example, where a customer has €100 in loans and €10 in deposits, prior to the sale of the loan the bank may offset the two against each other and sell the net (€90) to the buyer.
That does not require the borrower’s consent; the bank merely has an obligation to notify the affected borrower, letting them know that from now on they will be dealing exclusively with the buyer of the loan.
A major change relates to the securitisation of loans. Rather than selling a loan to a third party, a bank may alternatively de-recognise a loan – remove a financial asset or liability from its balance sheet – in two stages.
First, the bank establishes a special-purpose vehicle (SPV). It transfers to the SPV loans (either performing or non-performing), and this company later issues shares or bonds in order to raise capital. The shares or bonds, backstopped by the loans, are sold to investors. In this case, good and bad loans may be bundled together in the bonds/shares.
Meantime the insolvency framework has been tweaked so that more borrowers are now eligible. The framework concerns those borrowers whose loans are viable, that is, a where a debt restructuring scheme is in place.
Eligible for insolvency schemes are borrowers with a house with a market value of up to €350,000 – up from €300,000 previously.
This applies to non-consensual schemes – schemes that are imposed on banks.
Another change applies to individuals and companies alike: borrowers who have received state assistance, but do not service their loan for three months, are no longer protected by insolvency proceedings.
Where the insolvency process cannot proceed, then the ‘Estia’ scheme – which the government will soon unveil – kicks in.