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Govt submits new legislation to help mortgage debtors

National Economy Minister György Matolcsy submitted to Parliament a raft of legislation that aims to help Hungarians with foreign currency-denominated mortgage loans.

The bill fixes the exchange rates on repayments for borrowers that avail of the program for a period of 36 months but no longer than the end of 2014.

The rate for Swiss franc-denominated loans ─ once the most popular retail lending product in Hungary ─ is set at HUF 180 to the franc. The rate for euro-denominated loans is set at HUF 250 to the euro, and the rate for yen-based loans is set at HUF 200 to 100 yen under the bill.

The balance resulting from the difference between the fixed rate and the market exchange rate will be put on a special forint account. The interest rate on the account is to be pegged to the three-month BUBOR.

If the forint is stronger than the fixed rate, borrowers will still pay the fixed rate, but the difference will be deducted from the balance on the special account. However, if there is no balance on the special account, borrowers will pay the lower rate.

Borrowers may avail of the assistance package if they are not more than 90 days behind on repayments, if they are not participating in a restructuring program that eases repayments, if the run of their loan is longer than the end of 2014, if the market value of the their home at the time they took out the loan did not exceed HUF 30 million and if a foreclosure has not already started.

The money on the special accounts will carry a full state guarantee until the end of 2014 and a 25% guarantee thereafter. Banks will pay a guarantee fee to the state which they are in no manner to pass on to borrowers. The fee will be determined in a government decree.

The moratorium on foreclosures and evictions will remain in place between July 1 and October 1, 2011, but it will no longer apply to property that was valued at more than HUF 30 million at the time of the signing of the loan and on which debt outstanding exceeds HUF 20 million.

From October 1, 2011, limits will be set on the proportion of properties from their entire mortgage portfolios on which banks may foreclose. The limit will be 2% in 2011, 3% in 2012, 4% in 2013 and 5% in 2014. The quota will be same in the capital as elsewhere in the country.

The bill also ends the ban on foreign currency-denominated mortgage lending currently in force.

The bill establishes June 30 as the date on which the moratorium on foreclosures and evictions is to be extended. The ban on foreign currency-denominated lending is to be lifted on July 1. Legislation on the fixed exchange rate and special accounts is to come into force on the 45th day after its publication in the official gazette. The quotas for foreclosures are to come into force on October 1.

Retail borrowers with foreign currency-based mortgages saw their repayments rise as the forint weakened during the crisis, prompting Hungary's previous government to introduce moratoriums on foreclosures and evictions by lenders. The moratoriums have been extended several times, most recently until July 1, 2011.

Overdue payments on Swiss franc-based loans affected more than 90,000 homes at the end of last year, about a quarter more than the number of homes that were bought and sold during the year, according to National Bank experts.