The Tribune

By SANCHESKA BROWN

Tribune Staff Reporter

sbrown@tribunemedia.net

THE government’s Mortgage Relief Plan will be in place by the first week of September, Minister of State for Finance Michael Halkitis said yesterday.

Mr Halkitis said while the government has already created the conditions for plan to function, the September date allows participating lenders to prepare themselves administratively.

He also said some “structural deficiencies” in the system, found while trying to determine the cause of mortgage distress, will have to be corrected.

Mr Halkitis said: “These deficiencies include lack of consumer education, the absence of a credit bureau and insufficient mechanisms to provide protection to borrowers and lenders in the foreclosure process.

“In this regard the government has recently circulated to the Clearing Banks Association an early draft of a Borrowers Protection Bill to ensure that the structural issues in our lending system are addressed and that it is done with full and meaningful consultation of all regulated lenders.

“This plan along with the draft pension legislation and combined with the recent amendment to the Stamp Act allow access to stamp tax exemption for persons who have lost their first home to foreclosure and essentially covers all of the points within the 10-point Mortgage Plan put forth in the Charter of Governance.”

According to Mr Haliktis, in order to be eligible for the Mortgage Relief Plan, a mortgage must have originated prior to January 1 2009; the loan must be delinquent due to documented financial hardship caused by involuntary unemployment, under-employment or chronic illness; the outstanding mortgage principal amount must not exceed $500,000; and you must have an acceptable credit history prior to June 30, 2008.

The lender must also have a valid first and possible second charge mortgage and property clear of other mortgages, liens or encumbrances; mortgagors must have sufficient, sustainable, documented and verifiable income to support the restructured payments; and the plan only applies to owner occupied primary residence properties – no vacant lots, revenue generating properties etcetera.

Mr Halkitis said individuals wishing to participate in the plan will apply through their lender.

The lender will then review the circumstances and determine what an affordable mortgage rate is, given the reduced income of the borrower.

He said the difference between this affordable amount and the actual mortgage would be reconciled by rewriting the mortgage loan into two loans – a serviceable loan and a deferred loan.

“The government would contribute one third of the difference between the actual mortgage balance and what the client can service up to $7,500 to permanently reduce the balance of the deferred loan and the clients total mortgage debt,” he said.

“The lender would rewrite the remaining difference as a separate loan at 0 per cent for up to three years. The debt would continue to be secured by the same real estate security. However, there would be no principal payment requirement for a minimum of three years.

“The lender would then restructure the remaining total serviceable mortgage debt over an appropriate term at market interest rates. The loan term would be assessed on several factors including age of the borrower and sustainability of income.”

If joint government funding up to $7,500 plus the lender deferral does not cover the gap debt, Mr Halkitis said the borrower will have the opportunity to cover the shortfall from other sources before being denied eligibility for the plan.

In any event , borrowers would also have the right to appeal any decision by the lender to a panel appointed by the government, he said.

The government will also contribute an administrative fee of $100 per borrower to fund the costs associated with the restructure of the loans.

The government will also waive any Stamp Tax that would be incurred in registering the standard documents related to the plan.

Mr Halkitis said the borrower’s financial circumstances will be reviewed annually to determine if they have become able to make payments on all or a portion of the outstanding deferred debt.

The borrower remains obligated for the full amount and a mortgage remains registered on the property for the full amount.

A breach of the agreement by the borrower, including failure to disclose relevant financial information and any delinquent payments on the restructured debt, would result in the full amount, including the deferred amount, being due in full immediately.

The plan will be limited by a six month deadline for application and is open to all regulated financial institutions.

Mr Halkitis said the government believes the plan will significantly increase the probability of a person maintaining their home until their own personal circumstances improve.

The size of the government’s commitment under the plan could be up to $22,500 for eligible borrowers.