Massive arrangements of “red” housing and “small” business loans are expected from the beginning of autumn, when the new institutional framework will come into force. The revised Code of Ethics of the Bank of Greece is a “compass” for banks that will now call in payers, who are late out of necessity or strategy, and ask them to cooperate in repaying the loans.
1. When will the bank inform me about my debts?
The bank should inform the borrower in writing within 15 calendar days and inform him of the reason that characterised him as uncooperative and the details of the schedule, based on which the bank will act (eg process of liquidation of the property). It should also point out the risk of selling property of guarantors. The guarantors will still be liable for any remaining balance after the auction of the borrower's real estate.
2. When will I receive a call from the bank for cooperation?
The bank will need to contact the borrower even if the loan is a few days late. Written communication is mandatory if the loan is over 60 days late. If the borrower does not respond within a specific date, as determined in the definition of the cooperating borrower, the bank sends a second letter within 30 days. The second letter is a warning in relation to the borrower's characterisation as uncooperative and the risks he will face regarding the auction of his primary residence.
The bank summons the borrower for an arrangement and asks him to provide his financial details, filling in the “Standard Financial Status” form.
The bank evaluates the borrower’s financial data and considers: his assets, his current ability to repay the loan, the total amount and nature of the borrower's debts including those to the institutions, tax authorities, other public authorities or to the insurance sector, its history of financial behaviour, and the future ability of the borrower to repay the debts until the end of the settlement period.
The minimum level of "reasonable expenses" of living that is appropriate in the case of the borrower is taken into account. In other words, how much does his family need to live on, how much can he provide for the payment of the loan, etc.
In case of a proposition submitted by the borrower, the institution is obliged to evaluate the proposition and, within two months of receipt, either to consent to the proposition or to provide a written reply of rejection which means that the original proposal remains active, with the basic relevant justification, or a new and final proposal can be submitted.
3. What are my short-term choices? '
Short-term types of arrangements, namely with a duration shorter of two years, are promoted in cases where difficulties of repayment are justifiably judged as temporary.
This means that if the bank believes that the borrower, at some point, will start covering his instalments, it will choose the short-term solution.
(a) Capitalisation of overdue payments and adjustment of the repayment programme for the remaining debt.
(b) Agreement on repayment of overdue payments with a predetermined schedule.
(c) Reduction of the interest repayment instalment to a level that exceeds the corresponding repayment of interest for a specified short period.
(d) Only interest paid during a specified short period.
(e) Reduction of the repayment instalment to a level less than the corresponding to repayment of interest only for a specified short-term period. Unpaid interest is capitalised or settled.
(f) Suspension of payments for a predetermined period. Interest is capitalised or settled.
4. If I declare inability to repay for a long time, what are my options?
The bank will aim to reduce the interest instalments and/or loan burden, taking into account conservative assumptions about the borrower's estimated future ability to repay by the end of the repayment program.
(a) Reduction of the interest rate or interest rate margin.
(b) Extension of the loan repayment period
(c) Division of the borrower's debt into two parts:
(i) the part of the loan which the borrower is deemed to be able to repay, based on his existing and estimated future repayment capacity, and
ii) the remaining part of the loan, which is subsequently settled by liquidation of property or other arrangement that is agreed from the outset by both parties.
(d) Definitive partial deletion of the total claim of the institution, so that the remaining debt is set at an amount that is estimated to be paid smoothly.
(e) Reorganization of the enterprise, so that it becomes viable and capable of smoothly paying its debts. Reorganization may include actions such as change of administration, sale of assets, cost reduction, corporate transformation, renewal of credit limits and/or the provision of new loans.
(f) Partial conversion of the debt into equity, so that the remaining debt is set at an amount that is estimated to be able to be paid smoothly.
5. What will happen to my house?
There are options for those who cannot pay their mortgage. It is the voluntary transfer of the property by the borrower to the bank, the transfer of ownership of the property to the bank while staying in the property by paying rent.
Also, the voluntary sale of the property by the borrower in cooperation with the bank means that the bank acquires the property through an auction and in the context of a broader agreement with the borrower for the final settlement of his debt.
6. Are there more permanent solutions?
The bank can take steps to finally resolve the issue. Among the solutions are:
(a) Out-of-court settlement
(b) The borrower, who cannot meet the loan repayment terms, voluntarily grants ownership of the property to the institution. The agreement clearly states what the remaining balance will be. This solution may concern a residential property or a business residence.
(c) The borrower transfers ownership of the property to the institution and signs a lease/financial lease agreement, which ensures the possibility of renting the property for a certain minimum period of time. This means that the owner becomes a tenant of his property.
(d) The borrower voluntarily sells the property to a third party with the consent of the bank. If the sale price is less than the total debt, the bank will write off the remaining debt.
(e) An out-of-court agreement, in which the bank receives either a one-time payment in cash (or cash equivalents) or a series of pre-determined instalment payments. Under the settlement, the institution may partially cancel the claim.
(f) The bank acquires ownership of the property through an auction.
(g) The last final decision is for the bank to decide on the write-off of the whole debt if there is no liquidity and no further recovery is expected. Of course, there are strict criteria for this choice.
7. Which loans are excluded from the provisions of the Code?
Claims from contracts that have already been terminated before 1st January 2015 are excluded. Also, claims against a borrower who has submitted an application for inclusion in Law 3869/2010, for which a hearing has been appointed, claims against a borrower against whom third creditors have taken legal action to secure their debts or have already been cleared, in accordance with the applicable law, are excluded.
8. How many are the “red” loans?
According to the latest estimates, they have exceeded 108 billion euros. The problem is so obvious that banks point out that from 39.9% of non-paid loans at the end of 2014, they reached 44.2% in one year. In the first quarter of 2016, there was an increase and the percentage rose to 45.1% of total loans.
In business loans, out of the 148 billion euros, 64.8 billion have become “red”. In households with mortgages of a total of 68.5 billion euros, 41% is non-paid.
What is provided for vulnerable groups (disabled, cancer patients, etc.)?
9. Special conditions are provided for the handling of borrowers who are part of socially vulnerable groups.
• The institution must adopt a policy of dealing with borrowers with special health problems (such as vision, hearing, severe or long-term illness, mental problems) that justify alternative ways of communication, incorporating relevant criteria into its policy.
• After receiving the relevant information and explanation from a borrower, the bank must adapt accordingly the way of communication with him.
• In a cooperative borrower for whom a particular financial difficulty is evidenced, namely income less than the minimum level of “reasonable living expenses” and absence of liquidable assets from himself, his wife or children, other than the property he resides and whose fair value does not exceed the amount of one hundred and forty thousand euros (140,000), the institution proposes: long-term settlement solution (for the schedule and amount of payable instalments, taking into account all the obvious factors that may reasonably affect the borrower's ability to repay) or a final settlement proposal (taking into account his specific features in this case and especially if there are health problems along with the financial difficulties).
The eight principles for those who owe to many
10. What if I owe to a lot of creditors?
When the borrower faces financial difficulties and at the same time he has debts with many banks, the Bank of Greece provides eight basic principles:
• First principle: When the borrower faces financial difficulties, all involved creditors should be willing to cooperate, so that there is sufficient time (“suspension period”, “standstill period”) in order to obtain and evaluate information on the financial situation of the borrower, as well as for the preparation and evaluation of proposals to settle their claims against the borrower.
• Second principle: During the suspension period, all involved creditors agree to refrain from taking any measures aimed at reducing their demand against the borrower.
• Third principle: During the period of suspension, the borrower commits not to take any action that could adversely affect the claims of the involved creditors in relation to the situation on the date that the suspension period begins.
• Fourth principle: The interests of the involved creditors are best served when they are coordinated regarding the way they handle the borrower. This coordination may be facilitated when coordinating committees are set up with representatives of the involved creditors and with the support of professional advisors.
• Fifth principle: Throughout the suspension period, creditors must invite the borrower to provide and allow the involved creditors and/or their professional advisors reasonable and timely access to all relevant information relating to his financial situation. This makes it possible to better evaluate the sustainability of proposals for settling the claims of the involved creditors.
• Sixth principle: The proposals for settling the claims of the involved creditors against the borrower should take into account the current legislation regarding the prioritisation of claims.
• Seventh principle: The information collected for the purposes of this procedure, as well as any proposals for debt settlement, should be available to all involved creditors, who should treat them as confidential, unless they already relate to information publicly available.
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