Saeima bows to banks by making ‘non-recourse’ mortgages optional

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Saeima approved amendments to a set of legislative acts in final reading today, making non-recourse loans an option for mortgage borrowers rather than a mandatory requirement for banks.

Saeima approved amendments to the Insolvency Law, removing the mandatory non-recourse debt provision from it. This means that the non-recourse debt option will not apply exclusively to individuals involved in bankruptcy proceedings. The amendments also alter debt payment schedules for persons who are ruled insolvent.

Under the new legislation, borrowers will be allowed to choose either a standard mortgage agreement or the new version where the property alone will serve as collateral for the mortgage. This allows household borrowers to return the keys to the banks if they are unable to pay back their loans, but prevents the lender from going after the borrower’s other assets.

Other amendments in line with the debt-relief measures were made to the Personal Income Tax Law and Corporate Income Tax Law.

At the end of last year Saeima postponed amendments to the Insolvency Law until March 1. The government had approved amendments to the Insolvency Law on September 25 and originally agreed that they would come into effect on January 1. According to the amendments, bank mortgages issued to borrowers who buy a home/apartment, and have no other domicile, would have been considered non-recourse loans.

Commercial banks criticized the amendments as causing credits to become more expensive and commercial banks to lose interest in the state housing support program for families with children. The president promulgated the law, yet also pointed to the risks that these amendments could pose to Latvia's national economy.

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