Borrowers who have applied for protection under the so-called Katseli law are no longer exempt from being included in the loan packages banks have put up for sale.
In the case of one of Greece’s main banks, over a third (35 percent) of the portfolio being offered for sale includes the debts of borrowers formerly protected by the legislation introduced by former economy minister Louka Katseli, worth a total of 2.5 billion euros.
This year will see the full liberalization of the bad-loan sale market, as the final restriction has been lifted to the transfer of loans secured against primary residences. Along with the loan sales market, the loans management market is also being deregulated, as the funds that acquire the loans, instead of the banks holding them, will now be responsible for ordering loan management firms to take action.
In practical terms, the acquisition of a loan portfolio grants the buyer all the rights and obligations that the banks used to have. These include access to all the financial and property details of every debtor, as well as judicial options ranging from the confiscation of assets held by third parties, like cash in bank accounts, to property auctions.
Loan management companies will therefore be able to handle as the funds wish not only debts from credit cards or consumer loans, but also mortgages for a debtor’s main residence, even if he or she had sought protection under the Katseli law.
Unlike debt collection companies, loan management firms do not limit their activity in making phone calls to convince borrowers to pay up, but have the ability to offer settlement plans, often including haircut options that will also depend on the price the funds paid to acquire the loan portfolio. Furthermore, unlike banks, they will offer no horizontal haircut, but instead a tailor-made solution to each borrower, depending on his or her individual characteristics and attitude in negotiations.
A key advantage for the management companies is that they do not have to deal with the pressure of the stress tests or the assessment of their assets, as is the case with banks that are forced to seek immediate solutions to comply with regulators’ rules.