Experts discuss regulatory innovations intended to protect mortgage borrowers
The Expert Board for Financial Consumer Protection attached to the Bank of Russia has proposed that the right to mortgage loan restructuring for borrowers that are struggling to meet their mortgage liabilities become enshrined in law.
The law should provide for at least a 50% reduction in the monthly payment for at least six months. In this time, the struggling borrower may try and find a solution to their problems or sell the property, according to Viktor Klimov, head of the Mortgage Borrower Rights Protection Project at the All Russia People’s Front. The arrangement would apply a maximum of once in 5–7 years and, beyond repayment extension, would leave the rest of the loan structure unchanged.
Experts believe that the borrower’s statutory right and the creditor's obligation to grant restructuring would greatly boost the security of households opting for mortgage loans as well as public confidence in this financial product, which will stabilise the public perception of mortgage loans. Importantly, the right to restructuring will arise in statutory social cases and will not incur creditor losses.
Mikhail Mamuta, Head of the Service for Consumer Protection and Financial Inclusion of the Bank of Russia spoke in support of the Expert Board's initiative. ‘The regulatory innovation offers the borrower the chance to get through a temporary decline in income without falling into arrears. The law should outline basic terms and conditions for restructuring and minimum requirements protecting the borrower. Also, the entire mortgage process may be regulated by a special standard’.
The responsible mortgage lending standard, currently in the works at JSC DOM.RF with the support of the Bank of Russia and the Association Russia (Association of Banks of Russia), will become a body of principles and rules for borrower and creditor interactions throughout the mortgage loan lifecycle beginning from advisory services through debt collection, while sustaining the balance of the parties’ interests. The standard is intended to add transparency to mortgage lending, mitigate risks, and enable monitoring throughout the entire mortgage process. The parties joining the standard are expected to comply with its mandatory clauses and heed its recommendations.
Following its discussion of a borrower rights protection mechanism applicable to other consumer / mortgage / property-secured loans, the Expert Board spoke in support of the proposed legislation – based on public initiatives and the regulator’s proposals – which sees a total ban on the issuance of such loans by non-professional creditors and the transfer of receivables under mortgage loans to entities outside of Bank of Russia regulation. The draft law is expected to be considered by the State Duma in its autumn session.