Mortgage execution splits opinions
01 August, 2013
Mortgage execution splits opinions
A bill offering six-month moratorium on execution of overdue mortgages split opinions between the legislative and execution authorities. With the purpose to alleviate the social problems of evicted people who may lose their single dwelling space due to unpaid mortgages, a bill was initiated by Gedevan Popkhadze, Deputy Head of Human Rights and Civil Integration Committee of the Parliament, on six-month suspension of execution of the problematic mortgages until February 1, 2014. However, the bill was removed from the list of
issues slated for the second parliamentary hearing on July 27, 2013 after it faced severe criticism of financial market analysts, business and executive power.
All of them argued in unison that the six-month delay in mortgage executions would have negative, even irretrievable effect on banking sector, considered as the best developed sector of Georgian financial sector as yet, thus depriving national economy of its main pillar. According to Zurab Gvasalia, President of the Association of the Banks of Georgia, six-month ban on mortgage executions is an unprecedented case globe over and may have negative impact on the banking sector. Business ombudsman warned that such unreasonable decisions would undermine Georgian investment climate at large, hinder banks to attract financial resources because of reduced liquidity [as far as banks will be deprived of the chance to sell out the real estate put as collaterals to bad mortgages that will reduce their capitalization coefficient] and instigate the yet high interest rates to soar higher. Ministry of Economy and Sustainable Development of Georgia sent a package of remarks on the questioned bill to the parliament while Giorgi Kvirikashvili, economic minister, found it impossible to suspend execution of past-due mortgages by one stroke of hand and regretted that the Bill that was not agreed with the government in fact passed the first parliamentary hearing. Prime Minister Bidzina Ivanishvili found Parliament’s behavior irresponsible as it discussed the Bill without involvement banking sector. “You cannot dictate the business without preliminary agreement,” Ivanishvili said. “Banks have outstanding mortgage loans and they can face losses. Approving such bill without agreement with the banking sector is absolutely unreasonable and absurd.”
According to Lia Eliava, a financial analyst, banks may go bankrupt if they are deprived of collaterals of bad mortgages that means depositors will lose their savings while the six-months delay of mortgage execution will not solve the problem of targeted beneficiaries [who face evictions because cannot pay mortgages] for they sooner or later have to pay the loans.
“Who can guarantee that they will be able to pay after 6 months?” Eliava asks and warns that the delay in loan coverage will only encourage insolvent borrowers to look for more remedies to prolong the moratorium on payment that will have domino effect. “The good payers may get discontented and stop payments in the hope to get preferences too,” Eliava conjectures.
The questioned bill is delayed and expecting further discussions until the consensus is reached. Popkhadze does not rule out that the radical measures [ban on execution] may be replaced by more flexible and reasonable remedies however he cannot speak of any alternative ways at the moment. Eliava believes the alternative ways should be elaborated only through involvement of Georgian central bank that stands in the shadow for some reasons in this mortgage absurd theater and economic not legal experts have to be the first fiddles. She suggests the state to buy out past-due mortgages for example and let the insolvent borrowers take the saved apartments at preferential rent who gradually will pay off the money paid by the state and can get their houses back. However, Eliava believes the targeted beneficiaries must be differentiated and the state should aid only those who are supposed to lose their single dwelling space, not all who cannot pay mortgages.
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