Romania Passes Mortgage-Walkaway Law to Alleviate Debt Burdens

  • Parliament clears contraversial legislation before elections
  • Banking stocks advance with bill deemed `compromise'

Romania’s parliament approved a controversial law allowing citizens to hand back homes in exchange for release from mortgages used to buy them, a move designed to ease citizens’ debt burdens in an election year.

Lawmakers passed the legislation almost unanimously on Wednesday in Bucharest. After warnings from the central bank and the European Commission, the amended bill excludes a state loan-guarantee program for first-time buyers and sets a 250,000-euro ($280,000) limit on existing and new mortgages. President Klaus Iohannis must still sign off on it.

“The law is a constructive compromise between banks and parliament and, considering the version adopted today, we appreciate that there won’t be too many people exercising the rights provided by the law,” analysts at Bancpost Romania SA said in a note. “We expect the impact won’t be that high on banks’ bottom lines.”

Politicians in the European Union’s second-poorest member are pushing through fiscal-easing measures and socially targeted legislation before two rounds of elections this year. The central bank had called the mortgage bill “severe risk” to financial stability. Prime Minister Dacian Ciolos, head of Romania’s first technocratic cabinet, joined lenders in voicing concerns.

Banking Stocks

Romania’s leu was little changed at 4.4715 against the euro after the law was approved, leaving this year’s advance at 1.1 percent, according to data compiled by Bloomberg. Shares of Banca Transilvania SA rose 0.2 percent to 2.73 lei at 5:50 p.m. in Bucharest, while BRD-Groupe Societe Generale SA shares rose 1.3 percent to 10.06 lei.

Romania’s Banking Association said Wednesday that the law “has clear unconstitutional elements and creates moral hazard.” Lenders including Raiffeisen Bank Romania SA had already increased down-payments for new loans as the law emerged. 

Daniel Zamfir, one of the lawmakers who initiated the bill, said the legislation will help balance negotiations between citizens and lenders, and will help those who can’t pay their debt by giving them a chance to start over.

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