 General remark

The aim of the draft Guidelines is to provide greater detail on how credit institutions should give effect to Articles 18, 20(1) and 28 of the Mortgage Credit Directive (MCD) and, in this way, “ensure that these high-level provisions will be implemented and supervised consistently across the 28 EU Member States” and “thus contribute to the EBA’s objective of achieving a convergence of supervisory practices” . The EMF would like to recall that, on the basis of extensive consultation, discussion and negotiation during the legislative process on the MCD, the EU Institutions took the decision to take a largely minimum harmonisation approach to the Directive and to adopt high-level, principles in relation to the assessment of creditworthiness and arrears and foreclosure. The Co-legislators recognised the need to provide Member States with the necessary flexibility in order to take account of the specificities of their national markets. Prescriptive EU-wide legal obligations – either at the time or at a later date - would not only constrain long-standing national practices, but also potentially result in increased litigation. It is vital that this deliberate flexibility is maintained and respected during the transposition and implementation process.

The EMF would like to take this opportunity to underline that the flexibility and discretion provided for in the MCD does not equate to vagueness. The EMF would therefore caution against the use of vague notions in the draft guidelines, which could be a source of legal uncertainty and unnecessarily divergent local interpretations, and rather encourage a focus on objectivity.

As a further general remark, the EMF would like to underline the importance of striking the right balance between gathering relevant information on the financial situation of the candidate borrower without violating data protection legislation and ensuring that the candidate borrower is responsible and accountable for the information he/she provides, and, ultimately, for the final decision regarding which credit best suits his/her needs. In this respect, the principle of “responsible borrowing” is an extremely important one which should be promoted as much as possible through these Guidelines (see response to question 2 below).

I. Draft Guidelines on Creditworthiness Assessment

Draft Guideline 1.1:
 The assessment of the candidate borrower’s creditworthiness is carried out at the moment of the granting of the credit based on his/her circumstances at that time and not on the basis of the evolution of the borrower’s financial circumstances throughout the lifetime of the loan, which are very difficult for the creditor to predict. Unless the borrower provides information about variability of his/her income, a creditor cannot feasibly verify this over the lifetime of the loan.
 If the requirement to collect income history is retained, the collection of data from borrowers should be limited to a certain period of time in order to secure proof of employment and the level of the income. The collection of life-time income data would be onerous for both parties.

Draft Guidelines 1.2 & 1.3:
 As a general remark, the EMF believes that provided the lender complies with the requirements of draft guideline 1.1, there is no reason why there should be additional, specific requirements for self-employed individuals or those with a seasonal income.
 As specific comments on the contents of 1.2 and 1.3, the EMF is concerned about the introduction of notions aimed at guaranteeing the quality of the information provided by the consumer, specifically the independence of sources (1.2) and third party verification (1.3). For example, would the receipt of a pay slip or a tax declaration from the consumer fulfil the third party verification requirement? Or is the intention that a creditor consults a candidate borrower’s employer or the tax authority? These notions would be difficult to apply and justify operationally, would give rise to undesirable discussions with the third party and the consumers, particularly where the consumer already has a bank account/relationship with the lender and could actually prove to be an obstacle to the granting of mortgages to certain categories of consumers. The EMF therefore advocates the removal of this reference.

Draft Guideline 2.1: The more precise term “conclusion of the credit agreement” should replace “mortgage approval”.

Draft Guideline 3.1:
 This requirement does not appear to take account of the general and the personalised information requirements in the MCD, the latter in the form of the ESIS, and appears to impose additional disclosure requirements, the added value of which is not clear. It should also be noted that the assessment of whether documentation is well presented or not is very subjective.
 Furthermore, the EMF is concerned that this draft guideline appears to shift the responsibility for misrepresentation of information by the candidate borrower from the borrower to the creditor.

Draft Guideline 4.1:
 The drafting of this guideline implies that in the event of payment difficulties or over-indebtedness of the borrower it would be concluded that the creditworthiness assessment had not been appropriately carried out by the creditor, that this was therefore the cause of the hardship and that the lender is liable. In the MCD, the lender should only assess the “probability” for the customer to fulfil his/her obligations. To ensure consistency with the MCD, the following wording should be deleted “without causing the consumer undue hardship and over-indebtedness”.

Draft Guideline 4.2: The EMF understands this draft guideline as requiring the creditor to keep its credit policy up-to-date, rather than as a requirement on the creditor to continuously review the creditworthiness of the borrower. Confirmation of this understanding would be welcomed.

Draft Guideline 4.3: It is not possible to take into account all directly relevant taxes and insurances, since not all of this information is necessarily known to the creditor at the moment of the creditworthiness assessment.

Draft Guideline 5.1:
 Unlike for a candidate borrower’s existing financial obligations, creditors do not have access to information which would enable them to substantiate the “living expenses of the consumer”, making it difficult to fulfil this requirement;
 If this draft Guideline were to be retained, it should allow creditors to make use of a standard amount to determine reasonable living expenses.

Draft Guideline 6.1: As indicated above, the Industry is very cautious about requirements on creditors to make allowances for future scenarios because of the obvious limitations to doing this. For this reason, the Industry believes that any such requirements should be limited to the stress-testing of mortgage payments.

Draft Guideline 7.1:
 The risk profile of a loan typically depends on the individual circumstances of a borrower; a loan that might pose a higher risk for one borrower because of their circumstances may not for another because of a different set of circumstances. What is important is complete and comprehensive information and adequate explanations to the candidate borrower of the features of different loans. It should be recalled that specific loan types with particular features, such as foreign currency loans and variable interest rate loans, are extensively addressed in the MCD and it is our view that no further action is required in this respect.
 The EMF would welcome clarification from the EBA on the extent to which this requirement is intended to be a conduct or prudential consideration of the borrower’s risk profile. If the latter is intended, the EMF questions whether this is actually needed in addition to CRD IV.

Question 2: Are there any additional requirements that you would suggest adding to the Guidelines? If so, outline the reason(s) for each proposed additional requirement.

Following on from points made above, the EMF believes that it is important to include in the draft guidelines requirements relating to ‘responsible borrowing’, which would oblige borrowers to provide the lender with complete and correct information on their financial situation and personal circumstances in the context of the credit application process.
Following on from points made above, the EMF believes that it is important to include in the draft guidelines requirements relating to ‘responsible borrowing’, which would oblige borrowers to provide the lender with complete and correct information on their financial situation and personal circumstances in the context of the credit application process.