Mortgage law arrives as customers queue up to borrow
After three years of drafts and consultations, Turkeys new mortgage law is here. It was approved by parliament and signed by prime minister Erdoğan in March. It covers two areas: a new regime for mortgage origination and capital markets reforms for funding.
"There have been high expectations of a mortgage law," says Tolga Egemen, executive vice-president at Garanti Bank in Istanbul. "This law meets those expectations more or less. It puts the framework there for the whole range of originating, purchasing and selling. It is still insufficient to change the securitisation regime, as we need accompanying by-laws from various regulatory bodies. But these are coming."
Burcu Acartürk Yıldız, a partner at law firm Pekin & Pekin in Istanbul, explains: "For the underlying mortgage market the law makes a number of significant changes which benefit both borrowers and lenders," she says. "In particular, on the borrowers side it introduces the possibility of floating rate mortgages, or hybrids of fixed and floating rate products. The lenders get the ability to levy prepayment charges of up to 2%, and a new process that allows them to get collateral much more quickly than the existing foreclosure process, which could take up to two years."
Amenable to securitisation, the law allows trading of mortgages and the set-up of new mortgage finance corporations, non-bank institutions which could pool mortgages from smaller issuers for refinancing. Together, these changes are seen as fundamental to the further development of Turkeys nascent mortgage market.
On the funding side, the law sets out a clear framework for both MBS and covered bonds. According to Acartürk Yıldız, it makes mortgage securitisation possible for the first time.
"Previously it was theoretically possible for ancillary items to a mortgage, such as future receivables, to be transferred into a vehicle," she says, "but transfer of the mortgage itself was not possible. Now the mortgage assets themselves can be transferred."
Not just yet, though. Turkish banks have already launched into the new retail regime with variable rate products and prepayment penalties. But the funding changes are still waiting for secondary changes to existing legislation for example, capital markets law and execution and foreclosure law which are affected by the act.
"Its taken three years of discussion," says Acartürk Yıldız, "but in a way that has itself had a beneficial effect on the mortgage market. We have had lengthy television coverage, debates, giving the new system a high public profile. Just yesterday I was watching TV footage of people queuing in the street to take out new mortgages."