The European Commission will propose next year a mandatory shake-up of how lenders offer mortgages to the European Union's 490 million consumers, a document obtained by Reuters on Wednesday showed.
EU Internal Market Commissioner Charlie McCreevy is due to present the document, a White Paper, next month.
The following are what the document says will be part of a two-pronged shake-up including a directive or mandatory rules, and a recommendation or guidelines that EU states will be expected to apply.
EU states and the European Parliament would have final say on the content of the directive.
The directive will feature several elements:
-- harmonizing rules across the EU on early repayments, which currently vary from state to state
-- improving the quality and comparability of information given to consumers before they sign up to a home loan. The Commission believes the current voluntary industry code of conduct overseeing this aspect is not a full substitute for binding rules
-- harmonizing how the annual percentage rate of charge (APRC) is presented to consumers. The existence of different calculation methods and cost bases may mislead consumers and limit true comparability of products
-- the Commission will see to what extent provisions on APRC in the proposed consumer credit directive could be extended to mortgage credit
-- mortgage lenders and intermediaries should be required to assess adequately, by all appropriate means, borrowers' creditworthiness before granting them a mortgage loan.
To boost competition among lenders, a recommendation on valuation, land registry and foreclosure procedures will contain:
-- EU states will be invited to ensure their foreclosure procedures are completed within a reasonable time and at reasonable cost and that their land registers are available online
-- next year the Commission will investigate whether some national rules which create obstacles to the circulation of credit data constitute an infringement of the EU Treaty
-- it will also probe whether the prohibition on including non-domestic EU mortgage loans in cover pools for covered bonds is compatible with the free movement of capital and freedom to provide services
-- the Commission will examine market practices and prudential standards for the management of liquidity mis-match risk and mortgage lenders' incentives to move risk off balance sheet
-- the Commission will study prudential standards and the transparency of banks' exposures to securitization transactions that are directly or indirectly related to mortgage credit.