Greek banker Theodoros Kalantonis, who has survived the worst of times the past six years, said he can finally see the resurrection of home lending.
Next year “will be a turning point for the Greek mortgage market,” Kalantonis, executive general manager of retail products and non-performing loans at Alpha Bank A.E., said in an interview from his Athens office. “People will realize prices won’t fall any further, latent demand will continue to increase and banks will be more active in promoting new loans.”
Greece’s four largest banks, encouraged as the economy claws itself out of recession, plan to double mortgage lending this year and may do it again in 2015, according to Kalantonis. Home loan originations in Greece plunged from 15 billion euros at the peak in 2007 to less than 250 million euros ($340 million) last year, he said. Alpha Bank, the country’s fourth largest, and its competitors are counting on the growth rate of non-performing loans to stabilize once a law preventing banks from foreclosing on property is dismantled.
In 2010, after Greece became the first country in the euro region to receive an international bailout, the government froze foreclosures on homes with outstanding mortgage debt of 200,000 euros or less. The measure prevented thousands of Greeks from becoming homeless during a six-year recession, which has fueled a 27 percent unemployment rate as of April.
The law also allowed homeowners who could afford to repay their mortgages to stop payments with impunity. It pushed up the proportion of non-performing mortgages and other loans to 33.5 percent in the first quarter from 31.9 percent at the end of 2013, according to Yannis Stournaras, governor of the Bank of Greece. That compares with 3 percent in 2010, according to Kalantonis.
The government, under pressure to strengthen banks after receiving a total of 240 billion euros in aid, is forcing homeowners, who can pay their mortgage but don’t, to do so.
A series of amendments to the original 2010 ban has watered it down. As of January 2014, only borrowers who ask their banks to restructure their loans are exempt from foreclosure, according to Theodoros Skouzos, managing partner at Athens-based law firm Tax Law Iason Skouzos & Partners.
The amended law only protects first homes valued up to 200,000 euros if the borrower’s net annual family income is less than 35,000 euros a year. They also have to pay at least 10 percent of their net monthly income towards their mortgage.
“We see more foreclosures coming because it’s practically zero now,” Kalantonis said. “But we’ll only go after people in cases where we have strong evidence that they can pay, but have chosen not to.”
From January 2015, banks will use a new industry-wide index to calculate what is left over from a borrower’s annual salary once cost of living is deducted. The rest of their salary should go toward mortgage repayments, and if those in default refuse to pay what they can, banks will look at foreclosure, Kalantonis said.
The purpose of the policy is to persuade customers to restructure their loans and to go after those who can make payments to avoid “moral hazard,” he said.
“We are seeing a lot of strategic defaulters, those who could pay but didn’t, now coming forward to speak to banks to restructure mortgages,” Kalantonis said. “This has clearly helped to slow down the rate of increase of non-performing loans and makes banks more confident and willing to start lending again.”
The Greek mortgage market posted annual growth of 82 percent in the early 2000s. First-time homebuyers took advantage of easier financing and interest-rate reductions as the country joined the single European currency.
The volume of outstanding mortgages in Greece peaked in September 2010 at 81.5 billion euros before dropping to 70.8 billion euros in April 2014, according to central bank data.
Housing prices in Athens increased more than 170 percent from 1997 through the end of 2008, according to the data. As the recession took hold, apartment prices in Greece plunged by 33.4 percent between 2008 and the fourth quarter of 2013, according to the data.
The housing market’s collapse caused construction to stall. The number of building permits issued by the Greek authorities dropped 22 percent to less than 15,000 in the 12 months through April, according to data released today by the Hellenic Statistical Authority.
Skouzos, the law partner, said the government’s attempt to restructure mortgages won’t help borrowers.
“Borrowers are not really protected by restructuring because banks are just offering to extend the loans,” Skouzos said. “And the homeowner ends up paying more over a longer time because payments must first go towards interest and then capital.”
Skouzos said that although it will be “painful,” banks should foreclose and auction properties, using whatever money they get for them to cancel the outstanding mortgage debt. “This would result in severe price corrections but would finally pave the way to the rebirth of a dead market,” he said.
There were 47,561 home sales in Greece last year, according to central bank data. That’s down from 215,148 at the peak in 2005.
Prime Minister Antonis Samaras’s government is seeking to emerge from an economic contraction after triggering the euro-area financial crisis and undergoing the biggest-ever writedown of privately held debt.
The government has slashed a budget deficit that was more than five times the European Union’s limit of 3 percent of gross domestic product in 2009. Greece also returned to bond markets in April after a four-year exile and predicts economic growth in 2014 for the first time since 2007.
“All this will be happening in a steadily improving macro-economic environment,” Kalantonis said. “Borrowers’ attitudes will change when they see there is light at the end of the tunnel and they will be more willing to renegotiate.”
Greece’s four biggest banks aim to boost home lending to a total of 500 million euros to 600 million euros this year, he said.
“We have natural deleveraging of the old portfolios,” Kalantonis said. “Target number one is to replenish the stock of mortgages.”
In Spain, banks foreclosed on about 330,000 properties after the nation’s real estate market crashed in 2007, according to PAH, a group that supports people who have lost their homes to lenders. That contributed to Spain’s 1.7 million units of unsold homes and sent prices, which have fallen more than 45 percent since the peak, on a downward spiral which has not yet stopped.
“We will increase foreclosures but in a gradual and careful way, so as not to create a problem for the market,” Kalantonis said.
Kalantonis said his bank will negotiate with distressed borrowers to restructure their loans or offer to let them stay in their properties and pay whatever they can while the lender seeks a buyer for their homes.
“We studied the Spanish experience very carefully and we don’t want to repeat the mistakes they made,” he said.