News Column

Effects of approved bill would be more severe, says DIKO boss

August 12, 2014



By Elias Hazou

DIKO leader Nicholas Papadopoulos stuck to his guns yesterday, warning that enactment of the foreclosures bill as it stands will cause far greater economic hardship than the interruption of bailout cash from Cyprus' international creditors.

"The adverse effects if the bill is approved as is will be more severe than non-receipt of the next tranche," Papadopoulos said on state broadcaster CyBC.

And in an interview with the Cyprus News Agency, the DIKO MP said that mass foreclosures and forced sales of mortgaged properties would drive the country into deeper recession.

"We gain nothing by protecting a family's primary residence if the same household should lose its family business, its income. It will only be a matter of time before they lose their home as well," he said.

He was referring to cross-collateralization, where the collateral for one loan is also used as collateral for another loan.

For example, a primary residence under an existing mortgage may be in part used as collateral to take out a loan for a new business.

"If the small to medium enterprises lose ownership of their premises, which create the wealth of the economy, the effects will be far worse compared to any other consequences stemming from (non) compliance with the memorandum," Papadopoulos said.

The DIKO chief reiterated his party's demand for a "safety net," an insolvency framework governing both primary residences and SMEs who are having trouble servicing their debt.

It is a key condition for backing the foreclosures bill. Without DIKO's endorsement, the legislation has no chance of passing muster in parliament.

DIKO also wants legislation spelling out that mortgaged primary residences worth up to 350,000 are exempted from forced sales in the event the owner has sought recourse with the financial ombudsman.

The financial ombudsman is empowered to mediate between borrowers and banks on issues related to loans collateralised by the borrower's primary residence, where the borrower is unable to repay and a loan restructuring is required. Moreover, DIKO proposes modifying the working definition of a non-performing loan.

"Currently, someone owing 1m may be considered as being 1m in debt if he simply fails to pay a 10 fee to the bank from which he has taken out the loan. This is insane," Papadopoulos said.

"There has to be a minimum, above which a loan is considered non-performing."

DISY MP Prodromos Prodromou countered that Papadopoulos has its backwards. The effects of not implementing the adjustment programme would be "immense," he said on the state broadcaster.

The troika of lenders has made it clear that passage of the foreclosures bill within August is a must for the disbursement of the next bailout tranche. The item must pass before euro area finance ministers meet on September 12.

The next scheduled tranche is for 436m and the one after that (in December) will be around 500m, government sources said.

Without the assistance, the government is to all intents and purposes bankrupt.

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Source: Cyprus Mail


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