MIL OSI Translation. Region: Russian Federation –
Source: Central Bank of Russia –
The Committee on Standards for the Activities of Credit Institutions approved the Standard for the Protection of the Rights and Legitimate Interests of Mortgage Borrowers, agreed upon with the Bank of Russia.
The main goal of the document is to minimize the spread of high-risk mortgage lending schemes and to ensure that banks provide borrowers with more detailed information about the terms of the loan and the risks associated with it.
The standard, in particular, is aimed at preventing cases when banks send funds issued under a mortgage loan not to an escrow account, but to a letter of credit, where they then remain for a long time and are not used for their intended purpose. A ban on long-term placement of funds of mortgage borrowers in letters of credit will reduce the risks of citizens, since in letters of credit, unlike escrow accounts, funds are not protected by the deposit insurance system.
The down payment cannot include the amount that will be returned to the buyer after purchasing the apartment (cashback). The purpose of these requirements is for the buyer to pay the down payment using his own funds, since the less of them, the higher the risk that he may overestimate his strength and ultimately lose both the money and the apartment.
The bank will not have the right to receive compensation from the seller (developer) for setting a reduced interest rate on a mortgage if this leads to an increase in the price of the property.
The mortgage standard sets out the principles for determining the terms of a mortgage agreement, and describes what the lender must take into account when determining the loan amount, term, possible fees, and other parameters. It is recommended to conclude mortgage loan agreements for a term of no more than 30 years and for an amount no higher than 80% of the fair value of the mortgaged item.
The document also describes what information the bank is obliged to disclose to the borrower in an understandable form before concluding the agreement and what risks to warn about. The credit institution is obliged to answer the borrower’s questions about the mortgage loan and related services.
The standard will become mandatory for banks from January 1, 2025 and will apply to contracts concluded after this date. From January 1, banks will also be required, when receiving a reward from a borrower for setting a reduced interest rate, to honestly inform him of the difference in the total cost of the loan, so that when making a decision, the borrower understands whether this service is beneficial for him. The bank will also have to return the unused portion of such reward in the event of early repayment of the loan.
Standards Committee was createdin May 2024, two-thirds of which consists of representatives of banks and banking associations.
Preview photo: Valentin Antonov / TASS
Please note: This information is raw content directly from the source of the information. It is exactly what the source states and does not reflect the position of MIL-OSI or its clients.
Please note; This information is raw content directly from the information source. It is accurate to what the source is stating and does not reflect the position of MIL-OSI or its clients.
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EDITOR’S NOTE: This article is a translation. Apologies should the grammar and or sentence structure not be perfect.