As is the Fidesz government's wont, the eight-point proposal for the relief of mortgagors who are in financial difficulty due to the serious weakening of the Hungarian currency was not prepared by the appropriate ministry after careful consideration and consultation but was presented out of the blue by two members of parliament, Lajos Kósa and Antal Rogán.
It was on September 9 after a meeting of the Fidesz parliamentary delegation that the draft was made public. The eight points are the following:
(1) The terms of a contract cannot be changed if such a change is disadvantageous to the borrower.
(2) The arbitrary raising of the interest rate is forbidden.
(3) The median exchange rate should be applied.
(4) Paying off the mortage early should not carry a financial penalty.
(5) If requested, the length of the mortgage should automatically be extended by five years.
(6) Creation of a clean slate: the maximum the bank could demand from the debtor would be the current value of the property.
(7) In case of an extended inability to pay, the bank could not demand extra interest, late fees, or any other penalties.
(8) For the sake of fairness the above proposals are not applicable to commercial real estate or a second or third dwelling.
Tamás Erdei, president of the Hungarian Banking Association, announced the following day that the Kósa-Rogán package is unacceptable and that some of its stipulations are most likely unconstitutional. Erdei emphasized that before coming out with these proposals there was no consultation with the Banking Association. According to him negotiations between the Fidesz delegation and/or the government must commence immediately because "several suggestions of the legislators undermine on several points the current laws governing civil contracts." He continued by observing that some of the suggestions contradict passages of the "ethical codex" recently signed by Hungarian banks.
He called some of the suggestions "outright nonsense" that turn upside down the legal prescripts of contracts between banks and their clients. For instance, the automatic extension of the length of the mortgage constitutes an arbitrary breach of contract which is forbidden for the banks. He foresaw a situation in which people would default in order to be eligible for the automatic lengthening of their mortgage.
Then came the legal experts. According to István Lövétei, a constitutional lawyer, if the state interferes with the terms of a contract it must bear the cost of the loss incurred by the injured side. He specifically objected to the application of the median exchange rate when calculating mortgage payments. The contracts as they now stand contain a reference to the exchange rate of purchase and the exchange rate of sale. The state in this case would arbitrarily change the current contract signed and sealed. Gábor Török, professor of civil law, thinks that the law could prescribe the margin between the buying and selling price which is, by the way, currently 15%. That could be changed but there is still the problem with retroactivity.
What Hungarian experts didn't mention is the arbitrary raising of rates. For Americans it is hard to understand what this actually means. Here we have fixed-rate mortgages and variable mortgages. Naturally, the bank cannot raise the interest rate on a mortgage if a person borrows money at a fixed rate. But a variable mortgage will depend on the current interest rates.
The two gentlemen tried to explain away their lack of consultation and promised to talk to both sides soon. First, they talked to the representatives of the borrowers who were naturally not satisfied even with the Kósa-Rogán proposals. They would save absolutely every borrower, not just mortgagors. They went so far as to argue for the extension of assistance to those who have difficulties paying their gas or electric bills. Or those who took out a loan to buy a new plasma television.
Most people consider the suggestion that the banks couldn't demand more money from the borrower than the current value of the property beyond what banks could tolerate. One must keep in mind that at the moment there is a moratorium on eviction. Thus the banks would be helpless in recouping their money. Some experts think that this particular suggestion is so absurd that it is not even worth seriously discussing.
Tomorrow Kósa and Rogán will meet the representatives of the banks. One would think that the bank leaders and their lawyers could easily handle this duo, but knowing Kósa and Rogán it will be not an easy task to make them understand why the banks are objecting to some of their demands.