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HOUSING FINANCE IN EMERGING MARKETS POLICY AND REGULATORY CHALLENGES March 10-13, 2003 - Washington D.C.

HOUSING FINANCE IN EMERGING MARKETS POLICY AND REGULATORY CHALLENGES March 10-13, 2003 - Washington D.C. Disclosure, consumer protection and housing counseling by Bernard VORMS General Manager ANIL France www.anil.org. Why designing consumer protection rules and housing counseling system ?.

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HOUSING FINANCE IN EMERGING MARKETS POLICY AND REGULATORY CHALLENGES March 10-13, 2003 - Washington D.C.

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  1. HOUSING FINANCE IN EMERGING MARKETS POLICY AND REGULATORY CHALLENGESMarch 10-13, 2003 - Washington D.C. Disclosure, consumer protection and housing counseling by Bernard VORMS General Manager ANIL France www.anil.org

  2. Why designing consumer protection rules and housing counseling system ? Securing home ownership • Enables the home-buyer to master his home buying project • Secures the lenders’ guarantee • Avoids social difficulties

  3. Disclosure, consumer Protection and housing counseling For Home Buyers • From home-owners to home-buyers • The purposes of disclosure and consumer protection in relationship with the main factors of default • The ways and means of disclosure rules, consumer protection and housing counseling

  4. From home-owner to home-buyer • A process which allows for the gradual acquisition of a property thanks to a long-term loan. • All the rights of an owner • The property stands as a guarantee for the lender  Majority of home-ownersLarge % of tenants Majority of mortgagees

  5. Development of homeownership • Sufficient provision of funding for lenders • Borrower ability to repay :regulars incomes • Enforceability of lender’s rights   Development of home-ownership = legal security + Salaried workforce

  6. “Social” home-buying • Low down payment = high loan to value ratio • High debt to income ratio ( limited leeway)  Access to credit (public guarantee…) • Need for public financial support ( grants, subsidized loans, housing benefits, tax reduction, …)

  7. Default : what is at stake • borrower’s solvency • value of the property Defaults and foreclosures :  Effects for individual families  Lenders may be unable to enforce their rights Dismissed by court Favorable decision, but impossible to actually implement it  Public authorities held liable

  8. Statistics on default Among delinquent mortagees : • Hastily, poorly studied project : 33 %  Real charges being under-estimated  Ability to pay repay over-estimated • Divorce or separation 30%, • Employment problems 10% (Factors can be cumulative) France 1985 on subsidized loans

  9. Main reasons of delinquencies • A poor understanding of the dimension of the operation • A poor appreciation of the risk • A poor understanding of mechanisms • Hazards and accidents of life

  10. The purposes of consumer protection and housing advice • Making home-buyers aware of the real extent of their commitments,in the long run. • Helping the borrower to study his project • Helping the borrower to shop for the best mortgage • Helping the lenders to assess the ability of the borrower to repay • Helping the delinquent or over indebtedborrower

  11. Forbid dangerous loans or practices • Negative amortization • Loan with risky endowment schemes • Adjustable rate mortgage without security devices (caps…)

  12. Disclosure rules : some examples • European code of conduct. • Truth in lending act (TILA) • Real Estate Settlement Procedures ACT (RESPA) • Home ownership and equity protection act (HOEPA)

  13. A multifaceted approach for disclosures, consumer protection, and housing advice • Legislation, • Codes of conduct negotiated with consumer representatives, • Self-imposed ethical guidelines set by professional bodies, • Standards set by government sponsored enterprises as refinancing criteria • Credit bureaus (credit history) • Consumer education and housing counseling.

  14. The role of information and counseling • Counsel the would-be home-buyer • Counsel the borrower in default • Secure the home-buyer • Secure the debt

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