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Greece: Selected Issues New

Author(s):
International Monetary Fund. European Dept.
Published Date:
November 2019
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Primary Residence Protection in Greece: Impact and Recommendations for Reform1

A decade-long policy of primary residence protection in Greece, which has focused more on a ‘social’ goal than on resolving debt overhang, has contributed to a deterioration of payment discipline and the persistence of high mortgage NPLs. Impaired bank balance sheets and household debt overhang remain drags on economic recovery. Concerted effort is needed to ensure meaningful resolution of legacy household debt and to create an insolvency regime that serves the needs of a post-crisis economy. In this respect, Greece should adopt a personal insolvency law which provides a fresh start for individuals with unsecured debt and does not aim to keep individuals in homes they cannot afford. To immediately further the goal of NPL reduction, Greece should eliminate the backlog of personal insolvency cases in the courts and establish a credible threat of foreclosure. Complementing these measures, active supervisory oversight is needed to speedup balance sheet clean-up via sustainable debt solutions. Means-tested social support for housing should also be provided.

A. Introduction

1. The Greek economic crisis resulted in a significant deterioration of household indebtedness and a rapid increase in delinquencies on mortgage debt (Figure 1). Household debt as a share of disposable income, which had already increased before the crisis driven by lending, spiked from about 80 percent in 2008 to above 120 percent in 2012 due to high unemployment, adjustment of wages and pensions, and an increasing tax burden.2 Real estate prices collapsed, and banks largely stopped new mortgage lending. By 2012, the share of non-performing loans in the consumer and residential segments reached 51 and 28 percent, respectively.3

Figure 1.Greece: Legacies of Severe Economic Crisis

Sources: Bank of Greece; ELSTAT; Haver Analytics; S&P Market Global Intelligence; IMF, Financial Soundness Indicators database; and IMF staff calculations.

2. Banks’ capacity to deal with the growing volume of bad loans proved to be weak. The system had no capital buffers to absorb increasing losses. Internal structures were not ready for massive debt workouts. Banks’ initial response was to engage in short-term loan modifications (arrears capitalization, reduced payments, etc.), without a sufficiently prudent assessment of the sustainability of such solutions. Most banks had low standards for borrower qualification and loan structure, with redefault rates on such modifications close to 60 percent within one year (Blackrock 2011). Restructurings proved to be inefficient, and NPLs increased further.

3. The legal framework contributed to the growing NPL problem by removing any threat of foreclosure. At the onset of the economic crisis, Greece amended its legal framework to prevent creditors from foreclosing on primary residences and to allow borrowers to reschedule mortgage loans over decades, often with minimal payments. Inefficiencies in the court system allowed debtors to benefit from a blanket stay on creditor action for years before their cases would be heard. These legal shortcomings prevented the restructuring of non-performing mortgage loans and created significant opportunities for strategic default (ECB (2016), Stournaras (2019)).

4. More than ten years after the start of the crisis, banks still suffer from persistently high NPLs, and net mortgage lending remains negative. Despite recent improvement in economic conditions and housing prices, creation of specialized bad debt units within the banks, and development of a distressed debt market in Greece, no major progress has been observed in the residential NPE portfolio (43 percent of residential loans as of 2019 Q2). The stock of these bad loans remains close to €27 billion—about one-third of total NPEs—reflecting only a marginal decline since its peak in 2015. The cost of new mortgage loans is prohibitive, as creditors internalize upfront the risks of such lending, and mortgage lending is essentially non-existent.

5. Primary residence protection and banks’ own policies have hindered the sale and resolution of bad mortgage loans, and borrowers continue to face debt overhang, absent meaningful restructuring.4 About one-third of residential NPEs remain under protection from foreclosure, due to pending proceedings in the courts under the personal insolvency law. With respect to the remainder, banks have pursued a de facto bank policy not to foreclose, given political pressure (¶11). Over the years, banks have gradually shifted to longer-term loan modifications; but they have been reluctant to engage in restructurings that involve a write-down of such claims. 5 Given still high redefault rates, some banks recently launched programs that imply write downs of the mortgage to the commercial value of the property (i.e., a loan-to-value ratio (LTV) below 100 percent), and have intensified efforts to proactively reach out to borrowers. However, absent of a real threat of foreclosure, it has been challenging to ensure debtors’ compliance with revised loan terms. No sales of residential-only loan portfolios have taken place.6

6. The paper is structured as follows. Section B provides an overview of primary residence protection in Greece and its implications. Section C discusses measures needed to address the fundamental imbalances that have been created in the system.

B. Legal Framework: Primary Residence Protection

7. Greece first introduced a general moratorium on mortgage enforcement in 2009. The measure banned auctions of property tied to claims by credit institutions of up to €200,000.7 In 2010, this already broad protection was supplemented by a provision of the personal insolvency law (see below), which provided for an effectively blanket moratorium on foreclosure of primary residences. The moratorium applied to homes with an objective (i.e., tax assessed) value below €300,000,8 implying a near universal protection of primary residences, as almost all residences fell below this threshold. 9

8. This moratorium was coupled with a procedure in the personal insolvency law which allowed mortgage debt to be written down and rescheduled. In August 2010, Greece adopted its first ever personal insolvency law, which primarily aimed to deal with household indebtedness: the ‘Katseli’ law (Law 3869/10)—named after the then minister of economy (see Box 1). In addition to providing for an effectively blanket moratorium on mortgage foreclosure (Article 19), the law provided debtors, under certain conditions, with the ability to file for insolvency and receive a writedown of the value of the mortgage debt up to 85 percent of the tax-assessed value of the residence, which debtors could repay over a decades-long repayment plan (Article 9).

9. In practice, lengthy insolvency procedures allowed debtors to make negligible payments to creditors on their mortgages for years. By 2016, over 200,000 people had filed personal insolvency applications (approximately 2 percent of Greece’s population). The biggest wave of filings took place in 2015, after the blanket moratorium on primary residences (Article 19) was lifted and before amendments to the law were introduced to make eligibility requirements more stringent. In the meantime, the wave of filings overwhelmed the court system, causing a massive backlog that locked debtors and creditors in the system for years, with a current estimated backlog of cases of over 100,000 as of 2019 Q2. The strict deadlines set forth in the law were entirely unrealistic given capacity constraints in the judicial system. Debtors would typically receive hearing dates five or more years after filing, essentially meaning that they would make negligible payments on their mortgage loans for years.10, 11. During this period, the underlying loans remained as NPLs and could not be reclassified or resolved. This incentivized strategic filings (estimated at over 30 percent), which then further increased the backlog, perpetuating the vicious circle.12

Box 1.Law 3869/10 (The “Katseli” Law)

Objective: The aim of the law (as stated in the explanatory note) was to (i) help vulnerable debtors to regain their purchasing power, enhancing at the same time economic activity; (ii) give debtors with proven, non-fraudulent, and permanent inability to pay a second chance, and a way for creditors to get back a part of their loans; and (iii) protect the main primary residence of debtors, while not hurting creditors’ interests.

Overview: Article 9 of Law 3869/10 allowed debtors to apply to the local magistrate court to protect their primary residence from enforcement while a restructuring of mortgage debt was sought. The initial iteration of the law allowed the debtor’s mortgage loan to be written down to 85 percent of the objective (i.e., tax assessed) value of the primary residence, and debtors would have up to 20 years (subsequently extended up to 35 years), to repay the remaining balance, based on their capacity to repay (after allowing for reasonable living expenses). (Venieris 2019). In the post-2015 version of the law, there was no set threshold on the extent of the mortgage write-down, although as a safeguard for creditors, judges had to determine that after the mortgage restructuring, creditors were no worse off than they would be if they had liquidated the property. Under Article 8 of the law, debtors could also receive a shorter repayment plan (3–5 years) for unsecured debts, and the remainder of those debts would be discharged. Courts could require liquidation of the debtor’s property, apart from the protected mortgage. In practice, debtors often received a “grace period” on their mortgage repayment plan equal to the length of the shorter repayment plan, so they would not have to pay simultaneously on these two plans (Ferretti, et al (2016)).

Process: On its face, the law provided for a relatively quick, structured procedure. After submission of an application to the local magistrate court, a temporary hearing was required to take place within two months to verify eligibility, at which time a provisional injunction preventing all creditor action against the debtor was put in place. Although the injunction was by law prescribed to be (i) no longer than six months (when the main hearing was supposed to be scheduled) and (ii) only granted if the court believed the debtor’s application to be probable on its merits, in practice courts very generously granted the injunction in almost all cases. The applicant, through subsequent petitions, could roll the six-month injunction over multiple times until the final hearing date (which could be years from the date of initial filing).

Scope and Eligibility: The law was amended several times (2013, 2015, 2018) at the behest of the IMF and European Institutions, to narrow its scope and eligibility criteria, and to limit its use by strategic defaulters. However, the scope of mortgages eligible for protection remained broad. In the law’s final iteration, debtors were able to file for residential mortgage protection, provided the objective (i.e. tax assessed) value of the primary residence was no greater than €280,000.

Expiration: Various elements of Law 3869/10 expired. Article 19 of the law provided for a moratorium on residential property outside of the insolvency law, which expired on December 31, 2014 (see Box 2). Article 9, which provided for primary residence protection and restructuring, expired at end-February 2019. Therefore, while Law 3869 is still valid, it does not technically provide for mortgage protection. However, debtors are still able to file for insolvency under the Law and receive a blanket stay on all enforcement actions, which, given inefficiencies in the court system, could last for years.

10. While originally designed to be temporary (and similar in spirit to other early stage crisis country experiences), primary residence protection became a permanent feature of the Greek legal system. The IMF has recognized that in the wake of a massive economic crisis, some level of temporary protection for residences may be warranted, given that mass foreclosure could further depress real estate prices, force unnecessary losses on the banks, and exacerbate household debt distress.13 However, only in Greece did the temporary crisis measures become effectively permanent: The 2010 moratorium on foreclosure was scheduled to expire in 2011, but through a series of yearly extensions did not officially expire until end-2014 and was replaced thereafter by a de facto bank policy not to foreclose on primary residences, largely due to political and societal pressure. See Box 2. Deficiencies in the judicial system remained largely unaddressed, such that debtors could continue to file under Katseli and receive years-long stays on enforcement. While legal reforms were made in 2018 to mandate that all foreclosures of residential mortgages take place via electronic auctions, the use of this system to go after unpaid residential mortgages has been limited.14 The total number of successful auctions for residential real estate in 2018–2019 was about 1500 (with a total value of €200 million), and 70 percent of all auctions end in failure.

11. The mortgage protection provisions of Katseli expired at end-February 2019 and were immediately replaced by a primary residence protection and state subsidy scheme (the “PRP”), outside the insolvency law. PRP allows eligible debtors with mortgage or business loans non-performing at end-December 2018 and secured with a primary residence, to benefit from a restructuring solution of 25 years and write-down of the loan to 120 percent of the commercial value of the property. Debtors are then eligible to receive a state subsidy of between 30–50 percent of the monthly repayment installment, depending on income and family size. While the property value thresholds are lower than under the Katseli law, the perimeter was expanded to cover business loans secured by primary residences. The process uses an automatic platform to assess eligibility criteria (e.g., property value and assets), and there is no case-by-case assessment of the debtor’s capacity to repay. Since the launch of the platform in July 2019, use of the process has been minimal, with only 41 completed application and seven agreements reached. However, already over 90 court cases have been filed regarding the proceeding.15 Banks have recognized that 120 percent LTV over 25 years, even with a subsidy, may not create sustainable restructuring solutions. Therefore, while it is premature to fully assess experience, the PRP appears to perpetuate the legacy of Katseli, by creating obstacles to mortgage enforcement, emphasizing long-term repayment plans instead of meaningful debt reduction, and creating opportunities for litigation. The window for applying for PRP is set to expire at end-2019.

Box 2.History of Residential Mortgage Protection Laws

Year(s) of protectionLawScope
2008‐3714/08Prohibition of all property auctions at a price lower than their objective value. Prohibition of primary residence auctions for debt related to credit cards and consumer loans up to €20,000.
2009‐20133814/10Suspension of all property auctions tied to claims by credit institutions up to an objective value of €200,000 from September 16, 2009 to June 30, 2010; subsequently extended until to December 31, 20131.
2010‐20143869/10The auction of the primary residences is prohibited from August 3, 2010 to December 31, 2013 (initial deadline extended by L.3910/11, L.3986/11, L.3996/11, L.4047/12, L.4128/13). From January 1, 2014‐December 31, 2014 (L. 4224/2013), auctions could be suspended provided the debtor and the property met eligibility and property value requirements
2010 ‐ 2019Exemption of a debtor’s primary residence from liquidation in insolvency; allows for restructuring of mortgage loan, provided the property’s objective value does not exceed €300,000 (up to €450,000 depending on family size). Amended through L.4336/15, L.4346/15, L.4549/18, and L.4592/19 to introduce stricter income, wealth and property value criteria and help banks identify strategic defaulters.
20194605/2019Primary residence protection and rescheduling, with a government subsidy, under stricter income and wealth criteria and introduction of an electronic platform for applications.
1 In July 2015, the legislation imposing capital controls was passed, which also banned auctions and foreclosures. This was subsequently extended through October 2015.

12. The Greek experience demonstrates the negative effects of a policy that elevates primary residence protection well-above other considerations. The existing framework does not provide a lasting solution to the indebtedness problem for either debtors or creditors and merely absorbs already-stretched judicial and administrative resources (IMF (2017)), while further weakening payment culture.

C. Options for Reform

13. Action must be taken to address the fundamental imbalances that have been created in the system. The problems are numerous, including poor payment culture; high mortgage NPL levels and lack of new credit; limited ability to enforce against non-compliant debtors; a perpetual state of debt overhang at the expense of sustainable debt relief; and the use of the banking system to substitute for missing elements of social policy. These distortions contribute to preserving impaired balance sheets and disappointing lending growth, which imply elevated financial stability and fiscal contingency risks.

14. In the short-term, Greece should accelerate efforts to ensure meaningful write downs of legacy mortgage debt. Key measures include the following:

  • Backlog: Consistent with the commitments made in the context of European enhanced surveillance and in connection with an updated action plan,16 the Greek authorities should eliminate the backlog of household insolvency cases by end-2021, if not before. This will serve the purpose of (i) weeding out strategic defaulters and (ii) providing more substantial income to the banks, as until a final plan is reached debtors make only minimal payments, and NPLs cannot be resolved. Moreover, guidance should be given to judges (or if possible, a law adopted) to ensure that restructuring solutions are sustainable for debtors. These could take the form of maximum length of repayment plans, given the debtor’s ability to pay, as determined by debt service to income ratios. The authorities plan in 2019 Q4 to screen pending Katseli filings with an electronic system that will identify ineligible applicants, and courts should act quickly to dismiss these cases once ineligible applicants are identified.
  • Credible Threat of Foreclosure: Mass foreclosures are not desirable from a social or economic perspective. However, foreclosure against non-compliant debtors—particularly against those who may be acting strategically—provides an important disciplining mechanism. Banks should increase efforts to identify and foreclose on debtors engaging in strategic behavior to send an important message that this will not be tolerated. The authorities should also ensure that debtors cannot use legal loopholes to thwart foreclosure.17 Banks’ recent announcement that they intend to discontinue their de facto policy not to liquidate residential properties of lesser value is welcome, but this threat must be credible.
  • Expiration of the Primary Residence Protection Scheme: PRP should be allowed to expire at end-December 2019, as planned. Continued extensions would perpetuate the perception that the state will always step in to prevent foreclosure and further erode payment culture.

15. In parallel, Greece should overhaul its personal insolvency framework. The fundamental principles guiding such a framework should be as follows:18

  • Debtors should be relieved from the burden of their unsustainable debt. When burdened with a debt they cannot repay, debtors do not have the incentive to maximize income when they know this will go towards repayment of debt. They may also hide income from creditors and seek work in the informal economy. If debtors can receive a discharge from their debt burden, they are more likely to be contributing economic actors.
  • Creditors should realize their losses. An insolvency law should make creditors acknowledge the reality that their debts are largely uncollectable, and thereby internalize the costs of their lax over-lending. This contributes to the health of the banking system because banks’ balance sheets better reflect their actual assets (and may free up capital for new lending) and because the insolvency system imposes a disciplining mechanism that may prevent banks from over-lending.

16. Building on these principles, Greece should adopt a personal insolvency law that gives debtors with unsecured debt a fresh start. In line with most insolvency systems (Box 3), key elements of a new law would include:

  • a discharge of unsecured debt after liquidation of all the debtor’s nonexempt assets. To protect against moral hazard, debtors would be required to dedicate their income (minus an amount for reasonable living expenses) to repay creditors for a period of three years, after which a discharge would be granted. The discharge would be subject to revocation and the face value of debt fully reinstated if creditors bring to the court’s attention evidence of a debtor’s bad behavior (e.g., substantive failure to disclose or misrepresentation of income/assets).
  • Applications would be screened immediately by an electronic filing system for eligibility.
  • Most importantly, the law should explicitly provide that a filing for insolvency does not inhibit a secured creditor’s ability to enforce against collateral (i.e., there would be no stay on secured creditor action). However, a stay on action by unsecured creditors could be provided while the proceeding is ongoing (e.g., for a period of six months).

17. Such a framework would not include primary residence protection, consistent with most other insolvency systems. Since (non-strategic) debtors who file for debt adjustment are seriously over-indebted, the point of departure in most personal insolvency systems is that debtors will not be able to keep the home in the personal insolvency procedure. (See Box 3 and Technical Background Note XI in Aiyar et all (2015)). Therefore, in most countries, the creditor can sell the home or file for forced sale if the debtor is in default on secured debt irrespective of a personal insolvency procedure (World Bank (2013)).

18. Revisions to the framework should be supplemented by efforts to improve the capacity of the judicial system. The new framework should be coupled with substantial resources dedicated to improving the courts’ capacity to implement the law. This would build on current efforts undertaken by the Ministry of Justice to increase the institutional capacity of magistrate courts and judges who oversee insolvency cases. Preparation has begun to include financial training courses in the syllabus of the National School of Judges to increase financial literacy. These efforts should be accelerated and prioritized, both for existing judges and future ones. Lastly, the authorities must collect reliable data about insolvency proceedings to assist in identifying bottlenecks in the procedure and procedural abuses (Garrido et al (2019)).

19. For the mortgage NPLs remaining in the system, supervisory pressure should help to speed up NPL reduction. The ECB has announced a supervisory approach aimed to help banks resolve their NPLs and to push for a discontinuation of “wait and see” approaches observed in the past (ECB (2019)). It has also adopted guidelines for banks on non-performing loans, which requires banks to adopt their own strategies for NPL resolution (ECB (2017)). As discussed above, so far these measures have had limited effect on residential NPLs in Greece. However, more recent supervisory steps (thematic review of mortgage portfolios across Europe, introduction of provisioning calendar from 2020) could put more pressure on banks through ensuring a fair assessment of such loans and enforcing more demanding provisioning requirements.

20. Meanwhile, banks themselves should more proactively engage with delinquent debtors and ensure the sustainability of restructuring solutions. NPL strategies announced by the Greek banks (targeting still double-digit NPL levels on average by end-2021) imply greater emphasis on sales and securitizations for non-residential loans. Household NPEs are highlighted as a key challenge. While some banks envisage securitizations of residential loans, restructurings are viewed as the main tool for these portfolios. Some banks have already initiated programs that envisage partial debt write-downs (targeting monthly payments calibrated to match the debtor’s repayment capacity, but also within the banks’ ability to absorb related losses19). Moreover, banks have begun using the interbank platform Tiresias to share information amongst each other about debtors that have filed under the Katseli law, so that they can offer multi-lateral restructuring solutions. An efficient legal framework could help to improve payment culture and the prices of NPL sales (Aiyar et all (2015). At the same time, banks should be ready to seize market opportunities to bolster capital buffers, and accordingly absorb the cost of more aggressive write-off policies.

21. Finally, the removal of primary residence protection will need to be balanced with appropriate social policy. While the goal of a personal insolvency regime is to provide debtors with a fresh start, the role of social policy should be to protect those in need with an appropriately tailored system of housing benefits. In Greece, housing costs compared to disposable income are among the highest in the euro area, with very limited housing benefit support programs. The 2018 housing benefit reform was a step in the right direction (IMF 2018 AIV), but the government should scale up the social assistance program to ease the excessive burden of housing costs (both rent and mortgage) for vulnerable groups (see Box 4).

Box 3.Personal Insolvency Laws in Selected Countries

United Kingdom: The UK has two procedures which provide for liquidation of unsecured assets, followed by a discharge. First, debt relief orders (DROs), which are intended to be a cheaper alternative to bankruptcy, are available to individuals whose debts do not exceed £15,000, and whose nonexempt assets do not exceed £300. The debtor’s surplus monthly income (amount available after paying essential living expenses) cannot exceed £300. DROs last one year (during which all creditor action is stayed), after which all unpaid unsecured debt is forgiven. The second option is bankruptcy, under which the debtor pays his or her surplus income to the official receiver over a period of up to three years, and receives a stay against collection activity until a discharge is granted, which occurs one year after filing. A debtor’s assets are sold (other than personal belongings and tools of the trade) and proceeds distributed to creditors. Creditors continue to have the right to take possession of the debtor’s home if the debtor does make the scheduled payments.

United States: The U.S. Bankruptcy Code provides for two bankruptcy procedures: Chapter 7 and Chapter 13. Chapter 7 is the liquidation procedure. The debtor must surrender all nonexempt property to the creditors and a discharge is received immediately. Mortgage foreclosures generally can go forward, with only a three to four months delay, despite the bankruptcy filing.

Spain: Spain’s insolvency framework for individual consumers and entrepreneurs consists of two mandatory, consecutive stages: one out of court with a view to reaching a plan and, if unsuccessful, an in-court bankruptcy liquidation. After the liquidation, the debtor may apply to receive an immediate yet provisional discharge. This discharge affects (i) all outstanding unsecured and subordinated claims, (except public claims and alimonies) and (ii) the part of secured claims that remains unpaid following execution of the collateral. All non-discharged claims (except public claims) are then subject to a payment plan that lasts up to five years. A final discharge is generally granted upon compliance with the payment plan but may be revoked if various types of fraud are discovered. There is a stay on executions (up to 3 months).

Germany: The Germany Insolvency Law grants a discharge to debtors following personal insolvency proceedings ending in liquidation. “Discharge” requires both liquidation of a debtor’s existing non-exempt (i.e., garnishable) assets and mobilization of the debtor’s earning capacity during a defined period of best efforts (“discharge period”) to achieve non-exempt income for creditors. The discharge period is three years for debtors who achieve at least 35% recovery for creditors and to five years for debtors who manage to pay at least the cost of proceedings and six years for the remaining debtors. The plan does not affect mortgage debt (which may be executed).

Box 4.Housing Cost and Social Assistance in Greece

In 2018, about 40 percent households had to spend more than 40 percent of their disposable income on housing. This is four times higher than the EU-28 average (10 percent) and more than double the second highest in Europe (18 percent). Over 90 percent of households at risk of poverty were overburdened by housing costs.

Government support to ease the burden of excessive housing costs remains limited. In 2017, the Greek government spent only 0.02 percent of GDP on social assistance for housing, only one tenth of the EU-28 average. Two additional measures were launched by the government in 2019 are steps in the right directions but will have only marginal impact even if implemented in full. The first measure is a new means-test housing benefit targeting households who live in rented primary residences. The budgeted envelope is set at €300 million (half of the original amount envisaged in 2017 when the measure was designed to cover mortgage debtors as well), and about 250 thousand applications have been filed. The other measure is a government subsidy under the primary residence protection law (Law 4605/2019) available for eligible delinquent households, provided their mortgage debt was restructured to satisfy certain requirements (see ¶12). The allocated budget resources for this scheme are €150 million in 2019, and €200 million annually in the following years. However, as of September 2019 no application for subsidy was approved.

Households Overburden by Housing Cost, 2018

(Percent)

Source: Eurostat.

Note: The housing cost overburden rate is the percentage of the population living in households where the total housing costs (’net’ of housing allowances) exceed 40 percent of disposable income.

General Government Expenditure on Housing, 2017

(Percent of GDP)

Sources: Eurostat; and IMF staff calculations.

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1Prepared by Chanda DeLong (LEG) and Natalia Novikova (EUR)
2In addition, many mortgage borrowers with FX-denominated debt were hit by swiss franc appreciation.
3For purposes of this paper, non-performing loans (NPLs) refer to loans more than 90 days past due and denounced loans; non-performing exposures (NPEs) include, in addition to NPLs, other categories of problematic loans, consistent with the definition developed by the European Banking Authority. No data on NPE is available before 2015.
4As used throughout this paper, “primary residence protection” refers to the protection afforded to primary residences under the Greek legal system, including by Law 3869/10 (“the Katseli Law”), which allowed a debtor to receive, upon filing with the court, a stay on all creditor action against the debtor’s property and a forced restructuring by the court of the loan tied to the primary residence (that could not give creditors less than what they would receive had they liquidated the property). See Section B.
5Based on Bank of Greece (BoG) data, as of mid-2019, the share of loan modifications with partial debt forgiveness was less than six percent, and more than half of long-term loan modifications were extensions of principal only. On all types of loan modifications, redefault rates were over 50 percent over a 12–18 month horizon.
6A minimal number of residential loans were included in other portfolios sales and securitizations, as part of the total debt of selected borrowers. Two banks are considering securitizations consisting solely of residential mortgage portfolios, which will include mainly loans that have already been restructured by the court.
7Auctions had previously been a feature of the Greek NPL landscape, though data on their use are not available.
8The ceiling could be increased up to €450,000 depending on the marital status and the number of children.
9Blackrock (2011) found that residential property objective values were estimated to be 33% below market values. Artavanis and Spyridolpoulos (2019) found that almost 99 percent of their sample fell below the €300,000 threshold.
10The Katseli law provided for automatic suspension of all enforcement actions, if debtors were considered eligible. However, given that eligibility was often not determined until the judge considered the case, the mere filling of an application would typically suspend mortgage enforcement for years, even if a filing had no validity. While debtors awaited a final hearing, they were obligated to pay creditors an amount equal to 10 percent of their last overdue loan installment (which could not be less than 40 euros per month).
11The waiting time for a hearing was over five years in 60 percent of cases. (Action Plan (2018)).
12ECB (2016) estimated that about 30 percent of debtors who stopped servicing mortgage loans were strategic defaulters who they took advantage of the moratorium and inefficiencies of the insolvency process. Analysis by Artavanis and Spyridopoulos (2019) using proprietary data from a large bank showed a similar estimate, with 28% of defaults in primary residence mortgages found to be strategic. As of mid-2018, almost half of the applications under the insolvency law were eventually rejected, as the courts considered that there was no need to grant the protection status to the applicant, as either the debtor did not meet the requirements, or the borrower had the ability to fully repay his debt.
13Indeed, the IMF at the time commended the passage of the Katseli law, and IMF staff has generally recommended adoption of personal insolvency laws that balance debtor-creditor rights, in the wake of widespread household debt distress (Laeven and Laryea (2009), Liu and Rosenberg (2013), Andritzky (2014)).
14Law 4335/2015 (effective as of January 1, 2016) adopted a significant reform of the Code of Civil Procedure, which facilitated enforcement actions, including enabling the use of electronic auctions. Due to notarial abstention from auctions (due to violence or threatened violence against notaries), the first auctions (in electronic form) started again in November 2017, after almost ten years of suspended enforcement. Law 4512/2018 mandated the use of electronic auctions for sales of immovable property (including residences) as of February 21, 2018.
15Based on data provided by the Special Secretariat for Private Debt Management (September 2019).
16See Enhanced Surveillance Report—Greece, June 2019.
17The banking association has claimed that in order to delay or block enforcement proceedings, some debtors resort to filings under the household insolvency law to receive a stay on creditor action, or they submit petitions under the Civil Procedure Code to revise upwards the minimal bid price of the property, based on non-expert witness testimony.
19As of Q2 2019, provisioning coverage for residential NPEs in the four systemic banks was between 39 and 45 percent.

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