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

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 indebted borrower

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