22 November 2007

Banks face mortgage regulation in new EC paper

A draft copy of the European Commission's new White Paper on Mortgage Credit reveals plans for new regulation in the mortgage industry in the areas of early repayment, pre-contractual information and APRs, contrary to the expectation that banks would get off lightly in the new policy document.

In recent years, the commission has led a high-profile campaign to integrate Europe's retail financial markets following broadly successful regulatory intervention in the wholesale markets. 

Its attention is now turning to the nationally fragmented mortgage markets even though it accepts “limits to the potential for integration” due to factors such as “language, distance (and) consumer preference”. Nevertheless, it is still pursuing its policy goal although not through addressing the consumer but rather by targeting “supply-driven” initiatives through branches, intermediaries and other outlets. 

A draft of the paper seen by MLex and slated for publication on 19 December trumpets a “policy-mix” to deal with the problems of a mortgage industry divided along national boundaries, but makes clear that beyond other softer initiatives, it “considers that some objectives can be best achieved by a directive, which could harmonise some limited but essential aspects of mortgage lending.”

“The commission believes that a directive is the most effective tool to address (...) pre-contractual information; Annual Percentage Rate of Charge; responsible lending and early repayment,” states the draft.

The commission will conduct its usual pre-legislative cost/benefit analysis in the course of 2008 and is thought to be anxious to advance quickly enough to have legislation ready before the European Parliament completes its term at the end of May 2009. This would mean tabling legislation by the end of next year to avoid parliamentary elections rocking the boat. With its co-decision powers in financial services the parliament is seen as a vital institution in the law-making procedure for the sector.

The commission is, however, aware that a push for greater harmonisation will be fraught with problems as evidenced by the drawn-out struggle over the current Consumer Credit Directive – a text which has been bastardized by conflicting industry and national views between countries such as Germany and the UK.

The door, however, is left open for a non-legislative approach as the commission – true to its new-found principle of 'better regulation' – states that it is is withholding its decision until after an impact assessment and talks with governments and the European Parliament have taken place. 

In addition to scoping out this clear legislative path, the commission also promises to set up expert groups on “credit histories” and “securitisation” in 2008, as well as come forward with a softer “recommendation on valuation, land registers and foreclosure procedures”. 

The latter is designed to help member states “improve the efficiency of their forced sales and land registration procedures”. 

The paper's publication has slipped throughout 2007, most notably after the subprime crisis in the USA forced a rethink. This seems to have led to a push for greater transparency and reliable information by the commission rather than a more intrusive regulatory approach. 

Mortgage credit represents almost 47 percent of EU GDP, according to research by the European Mortgage Federation. 

By Lewis Crofts

© Graham Bishop