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Integration of European Mortgage Credit Markets (White Paper)
The integration of European mortgage credit markets is crucial to the European Union's economy and internal market. The removal of legal and economic obstacles opens the way to improving the effectiveness and competitiveness of the mortgage credit market. The Commission proposes meeting these challenges to improve operation of the sector on a European level.
White Paper of 18 December 2007 on the Integration of EU Mortgage Credit Markets presented by the Commission [COM(2007) 807 final - not published in the Official Journal].
The integration of the European credit market is central to the European Union (EU) economy and the efficient functioning of the internal market. The Commission identifies the challenges to which an appropriate solution could be provided to remove the obstacles to integration of the market.
The detailed examination of the barriers to the integrated market identified four objectives to strengthen competition and effectiveness of the markets, namely:
- facilitating the cross-border supply and funding of mortgage credit. The obstacles (legal frameworks, infrastructures, etc.) should be removed. This removal should allow development of a wide range of mortgage funding instruments, while protecting consumers and preserving market stability;
- increasing product diversity. To meet consumers' needs, the removal of barriers to distribution and sale should encourage diversification of mortgage products, in particular to the benefit of new and innovative products;
- improving consumer confidence. Consumers should be in a position to make an informed choice based on clear, comparable information. Lenders should assess more thoroughly borrowers' financial capacities. In addition, they should also be given relevant advice;
- facilitating customer mobility. The freedom of consumers to change lender requires transparency of costs and product characteristics.
Achieving the objectives
On the subject of legislation, a review will assess law-making opportunity, in particular in terms of costs and benefits in accordance with the principle of better regulation. Nevertheless, the Commission has identified three key areas to be looked at, namely:
- early repayment. In this sensitive area, exploration of the various options will determine the possibility of developing a European regime for early repayment;
- quality and comparability of information. Information must be structured, comprehensive, concrete and simple. In this perspective, the European Standardised Information Sheet (ESIS) will be finalised and consumer-tested to ensure uniform application throughout the EU. The extension of Annual Percentage Rates of Charge (APRCs) provided in the proposed Consumer Credit Directive on mortgage credit could also be studied;
- responsible lending and borrowing. More responsibility should be placed on lenders to access credit information registers of all the other Member States in order to adequately assess borrowers' creditworthiness. Impartial advice that is relevant to consumers is also essential. Legislation on the subject is also to be anticipated to guarantee them an informed choice.
To address these matters, the creation of an Expert Group on Credit Histories, support for financial literacy and the possible extension of contract law to mortgage agreements (proposed Rome I Regulation) make up the framework of application to deal with the issues covered.
In terms of valuation, land registers and foreclosure procedures, the Member States should improve the efficiency of their forced sales and land registration procedures. The Commission also intends to publish regular scoreboards on the cost and duration of land registrations and foreclosures.
In order to combat infringements, the Commission will ensure compliance with Community rules in terms of:
- national data circulation and service provision rules on the subject of credit;
- prohibition practised by certain Member States on including non-domestic mortgage loans in cover pools.
In terms of mortgage credit funding, experts' reports and the turmoil of the US sub-prime market must be taken into account in order to analyse the following questions:
- management of liquidity mismatch risk;
- movement by lenders of credit risk off balance sheet;
- exposure of banks to securitisation transactions;
- transparency measures for end investors.
In accordance with the Green Paper on Retail Financial Services, the Commission also carries out other assessments, in particular of the role of non-credit institutions in credit markets, the marketing of equity release products, unfair practices (such as 'tying' practices) and interest rate restrictions.
This White Paper continues the Communication from the Commission entitled "A single market for 21st century Europe" within the context of the turmoil of the US sub-prime market.