The sale of mort­gages and loans to funds

Financial Mirror (Cyprus) - - FRONT PAGE -

Any in­ter­ested fund will buy th­ese loans at rel­a­tively large dis­counts that might range around 30%-40% of the pre­vi­ous value, not only be­cause the buy­ers are tak­ing a huge risk, but be­cause they should then sell th­ese loans at a profit. The of­fer of prospec­tive buy­ers and the level of dis­count that will be re­quired will de­pend on the qual­ity of the pack­age that will be of­fered.

Loans with good mort­gages will ben­e­fit from smaller re­duc­tions, while the not so good or ‘bad loans’ for which there is de­mand, will have a greater dis­count. There will even be of­fers at around 15%-20% in the cases where the loan guar­an­tees will have lit­tle de­mand, such as agri­cul­tural fields, un­fin­ished projects and gen­er­ally mort­gages with dif­fi­culty top fore­close.

That is why lenders are preparing loan pack­ages which in­clude at­trac­tive mort­gages or en­ter­prises, in­clud­ing unattrac­tive loans, that will act as the car­rot in the of­fer, some­thing sim­i­lar to what is hap­pen­ing now in Greece.

There­fore, the next step for the lenders is to pre­pare such pack­ages for sale both in terms of qual­ity and in terms of va­ri­ety and value di­ver­sity of the pur­chase amount.

We may not all be ex­perts on this new is­sue, but given the na­ture of our mort­gage mar­ket and the small size, I do not really ex­pect strong in­ter­est from abroad, while do­mes­tic de­mand is rather im­pos­si­ble to highly un­likely.

The value of th­ese pack­ages is also di­rectly linked to the ex­is­tence of ti­tle deeds for the mort­gaged prop­er­ties. Un­for­tu­nately, de­spite all the ef­forts of both the In­te­rior Min­istry and the Lands and Sur­vey Dept., the en­tire mat­ter of is­su­ing ti­tle deeds is still stuck in bu­reau­cracy. As much good will as th­ese two may have, the process for is­su­ing th­ese ti­tle deeds re­mains the same as it has been for the past 40 years, so it is not pos­si­ble to meet the cur­rent re­quired speed, as de­scribed in our obli­ga­tions to the Troika. The fail­ure to is­sue ti­tle deeds will also have a direct im­pact on the stage of plac­ing pack­ages for sale.

So, for you to bet­ter understand the lev­els of bu­reau­cracy, al­low me to sub­mit the fol­low­ing ex­am­ple.

Await­ing the cer­tifi­cate for fi­nal ap­proval, an ad­di­tional re­quest was sub­mit­ted for three pools in three hous­ing units. The gov­ern­ment em­ployee was on leave and re­turned in 12 days; he had “other du­ties” and con­cluded the on-site visit af­ter two and half months from the date of the ap­pli­ca­tion. When the case file was sub­mit­ted for ap­proval, the higher rank­ing of­fi­cer was away, so now we are still wait­ing.

You can­not solve the is­sue with only the good in­ten­tions of the re­spon­si­ble Min­is­ter, with­out im­ple­ment­ing rad­i­cal changes, while the unique project in ques­tion may be in the hands of the Land Registry, how­ever the is­suance process has to be seen to be be­lieved be­cause the work­load in the gov­ern­ment of­fice will prob­a­bly dou­ble lead­ing to the adop­tion of this mea­sure.

An­other is­sue that is of equal sig­nif­i­cance is the need to fi­nance the pur­chase of the pack­age.

Cer­tainly the sell­ers/lenders should be pre­pared with some sort of plan and I can fully un­der­stood their hes­i­ta­tion to of­fer such fund­ing, since the whole en­deav­our is the liq­ui­da­tion of the mort­gage or col­lat­eral and not its re­clas­si­fi­ca­tion or re­struc­tur­ing.

As we grow older and ma­ture in age, so do we learn new things, even through an un­ex­pected man­ner, while th­ese new devel­op­ments will lead to many so­cio-eco­nomic prob­lems, the ram­i­fi­ca­tions of which will only sur­face sev­eral years from now, es­pe­cially im­pact­ing the next gen­er­a­tions.

Fi­nally, al­low me to agree with the pro­pos­als put for­ward by bor­row­ers that there be ex­cep­tions in cases of fore­clo­sures and ex­change of debt, both for tax pur­poses and for trans­fer fees.

Rest as­sured that this cost will be charged by the lender onto the bor­rower and in the end both (tax + trans­fer fees) will be bur­dened on the loans, making them costlier to re­pay. Even though it is un­der­stood that the ex­emp­tion of both the taxes and the trans­fer fees will be to the detri­ment of the State, it should be con­sid­ered so that lenders are also helped in such cases, oth­er­wise new bur­dens will be added with lenders and funds suf­fer­ing even fur­ther and at the end of the they will all want a hair­cut, for which the tax­payer or the state will have to pay.

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