EBA issues final guidelines and its opinion on mortgage creditworthiness assessments and arrears and foreclosure

01 June 2015

The European Banking Authority (EBA) published today its final Guidelines on creditworthiness assessment, as well as its final Guidelines on arrears and foreclosure. These Guidelines support the national implementation by Member States of the forthcoming Mortgage Credit Directive (‘MCD'). They will ensure that consumers are protected consistently across the European Union when interacting with creditors. The Guidelines apply from 21 March 2016, the transposition date of the MCD. As a further support to the implementation of the MCD, the EBA also published today the Opinion on Good Practices for Mortgage Creditworthiness Assessments and Arrears and Foreclosure, including expected mortgage payment difficulties.

Both Guidelines ensure that national authorities implement the MCD consistently across the EU, by providing greater detail on how creditors should give effect to the relevant MCD provisions.

The Guidelines on creditworthiness assessment establish requirements for verifying consumers' income, documenting and retaining information, identifying and preventing misrepresented information, assessing consumers' ability to meet their obligations under the credit agreement, considering allowances for consumers' committed and other non-discretionary expenditures, as well as allowances for potential future negative scenarios.

The Guidelines on arrears and foreclosure establish requirements in terms of policies and procedures for the early detection and handling of payment difficulties including staff training, engagement with consumers, provision of information and assistance to consumers, resolution process and documentation of dealings with consumers and retention of records.

The revised Opinion on Good Practices for Mortgage Creditworthiness Assessments and Arrears and Foreclosure, including expected mortgage payment difficulties, lists additional and non-binding good practices that the EBA has observed across Member States.

Background and legal basis

The Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (Mortgage Credit Directive - MCD) was published in the Official Journal of the Commission on 28 February 2014, with a transposition date of 21 March 2016.

Articles 18, 20(1) MCD require that, before concluding a credit agreement, the creditor makes a thorough assessment of the consumer's creditworthiness and takes into appropriate account factors relevant to verifying the ability of the consumer to meet his/her obligations under the credit agreement. In addition, the MCD (Article 28) sets out provisions in the area of arrears and foreclosure, and specifically requires that Member States adopt measures to encourage creditors to exercise reasonable forbearance before they initiate foreclosure proceedings.

These guidelines provide further detail on requirements set out in Articles 18, 20(1) and 28 MCD in respect of credit agreements that fall under the scope of Article 3 MCD.

The Guidelines will apply from the transposition date of the MCD, i.e. 21 March 2016. Following the publication of the English version, the EBA will make available, in due course, the translations of these Guidelines in all EU languages.  Within two months from the publication of the translated Guidelines or within two months of the date on which they are designated, in their Member State, as competent for the relevant provisions of MCD, whichever is the later date, competent authorities shall confirm to the EBA their compliance status, which will be disclosed on the EBA website.

The Guidelines on creditworthiness assessment are aligned with the Principles for Sound Residential Mortgage Underwriting that were published by the Financial Stability Board in In April 2012

In June 2013, while the MCD was still being negotiated, the EBA had already published two Opinions on mortgages through which it conveyed its early views. On the MCD transposition date of 21 March 2016, these two Opinions will be repealed and replaced by the two Guidelines and the revised Opinion mentioned above.

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Franca Rosa Congiu

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