Banks: no to American way in handling debt
09.02.2010, 16:18Banks in Estonia are opposing the proposal that a defaulting private borrower whose home has been repossessed by a bank has repaid his or her full loan once the home is sold. Aivar Rehe, chairman of the Estonian Banking Association, says that banks are not supporting the draft legislation put forward by opposition Centre Party and Social Democrats.
Under the current practice, a borrower is obliged to continue repaying his or her loan also after the bank has repossessed and sold the home put up as collateral. In some cases banks have restructured the remaining loan amount into a consumer credit contract which often carry 16% interest.
According to Rehe, while the authors of the proposal say it would help housing loan borrowers who are in default, banks regard it as failure by borrowers to fulfil their obligations.
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"Banks very clearly oppose the introduction of such a system," said Rehe who is also chairman of Sampo Pank. He added, however, that the proposal was worth debating and should include a very detailed analysis of its impact to the business, loan and legal environment.
"It would wipe out ten years of growing housing loan portfolios and current ideology. The banks oppose such an American way," said Rehe, referring to the system used in the US where the loan contract made between the bank and the customer expires once the collateral is sold.