Green paper - Mortgage Credit in the EU
Date: 2005-07-19
Institutions: European Commission
Subjects: competitiveness, consumer protection, economic development, financial institution, market, real estate credit

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.7.2005 
COM(2005) 327 final 

GREEN PAPER 

Mortgage Credit in the EU 

(presented by the Commission) 

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TABLE OF CONTENTS 

INTRODUCTION...................................................................................................................... 3 

I 

II 

ASSESSING THE CASE FOR COMMISSION ACTION ......................................... 4 

CONSUMER PROTECTION...................................................................................... 6 

Information................................................................................................................................. 6 

Advice Provision and Credit Intermediation.............................................................................. 7 

Early Repayment ........................................................................................................................ 7 

Annual Percentage Rate ............................................................................................................. 8 

Usury Rules and Interest Rate Variation.................................................................................... 9 

Credit Contract ........................................................................................................................... 9 

Enforcement & Redress ........................................................................................................... 10 

III 

LEGAL ISSUES ........................................................................................................ 10 

Applicable Law ........................................................................................................................ 10 

Client Credit-Worthiness.......................................................................................................... 11 

Property Valuation ................................................................................................................... 11 

Forced Sales Procedures........................................................................................................... 11 

Tax 

12 

IV 

MORTGAGE COLLATERAL.................................................................................. 12 

Land Registers.......................................................................................................................... 12 

Euromortgage ........................................................................................................................... 13 

V 

FUNDING OF MORTGAGE CREDIT..................................................................... 13 

ANNEX I – RESPONSE TO GENERAL FORUM GROUP RECOMMENDATIONS ........ 15 

ANNEX II – TEXT OF FORUM GROUP REPORT RECOMMENDATIONS .................... 18 

ANNEX III – GLOSSARY...................................................................................................... 24 

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GREEN PAPER 

Mortgage Credit in the EU 

(Text with EEA relevance) 

INTRODUCTION 

(1) 

(2) 

This Green Paper is the central part of the process to assess the merits of Commission 
intervention in the EU residential mortgage credit markets. Another key aspect of this 
assessment process is a Commission funded study on the costs and benefits of further 
integration of these markets.1  There will be a Hearing in December 2005 to mark the 
conclusion of the consultation process. 

Consideration of intervention in the EU mortgage credit markets is a key aspect of the 
Commission’s commitment to meeting the ‘Lisbon’ objectives aimed at enhancing EU 
competitiveness.2 
It  forms  a  very  important  element  of  the  Commission’s  policy 
for  the  integration  of  financial  services  in  general  and  retail  financial  services  in 
particular.3 
A  more  efficient  and  competitive  mortgage  credit  market  that  could 
result through greater integration could contribute to the growth of the EU economy. It 
has the potential to facilitate labour mobility and to enable EU consumers to maximise 
their ability to tap into their housing assets, where appropriate, to facilitate future long-
term security in the face of an increasing ageing population. 

(3)  Without prejudging the follow-up of this Green Paper, the Commission is fully aware 
of the importance and impact of mortgage lending on the EU economy. It is, however, 
too  early  in  the  consultation  process  for  any  decisions  on  whether  the  Commission 
should  act,  let  alone  for  assessments  of  which  instrument(s)  might  then  be  most 
appropriate.  What  is  clear  is  that  any  action  that  the  Commission  might  take  to 
integrate  these  markets  would  be  aimed  at  making  them  more  efficient  and 
competitive  for  the  benefit  of  all.  This  could  be  achieved  by  ensuring  that  mortgage 
credit can be demanded and offered with limited hindrance throughout the EU and that 
market  completeness,  product  diversity,  and  price  convergence  are  enhanced.  The 
Commission appreciates the merits of a more liquid funding market, based on modern 
and  flexible  funding  techniques  and  products.  It  is  aware  of  the  emergence  of  new 
products, such as equity release*, which merit careful assessment with regard to both 
their potential risks for consumers and their perceived ability to offer new sources of 
finance to EU citizens, in particular with a  view  to addressing the pension financing 
problems  which  current  and  future  generations  will  inevitably  have  to  face.  Finally, 
the  Commission  is  aware  of  the  impact  of  this  market  on  the  well-being  of  EU 
citizens. There is a huge social and human dimension attached to housing and credit, 

* 
1 

2 
3 

All words and terms in italics are defined in the Glossary at Annex III. 
This  study  will  be  published  on  the  DG  Internal  Market  and  Services  website  in  August  2005 
http://europa.eu.int/comm/internal_market/finservices-retail/index_en.htm. 
COM(2005) 24. Growth and jobs: A new start for the Lisbon strategy. 
COM(2005) 177. Green Paper on Financial Services Policy (2005-2010). 

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including  aspects  such  as  over-indebtedness.  Any  policy  in  this  area  must  take  that 
dimension into proper consideration.4 

The  Commission  will  consider  carefully  all  input  received  through  this  consultation 
process.  Action  will  be  proposed  by  the  Commission  after  the  consultation  process 
only  if  it  is  demonstrated  that  there  is  a  clear  business  case  for  Commission 
intervention in the EU residential mortgage credit markets, i.e., if the potential benefits 
of  intervention  can  outweigh  the  anticipated  costs  of  such  intervention.  Any  future 
initiatives,  not  necessarily  of  a  regulatory  nature,  would  be  announced  in  a  White 
Paper setting out the results of the consultation, to be issued in 2006. Such initiatives 
would be subject to a thorough impact assessment. 

Responses  to  this  Green  Paper  must  be  received  by  30  November  2005  at  the 
following email address: markt-mortgage-consultation@cec.eu.int. Responses will be 
placed on the Commission’s website, unless there is an explicit request to the contrary. 

ASSESSING THE CASE FOR COMMISSION ACTION 

The EU mortgage credit markets constitute a crucial aspect of the overall economy of 
all  EU  Member  States.  At  the  end  of  2004,  the  value  of  outstanding  residential 
mortgage loans represented about 40% of the EU GDP. 

(4) 

(5) 

I 

(6) 

(7)  Mortgage credit markets are amongst the most complex markets in which consumers 
engage.  The  ‘value  chain’  of  a  mortgage  transaction  can  involve  different  and 
specialised  market  players  at  each  stage.  Mortgage  brokers,  packagers  of  products, 
specialist/generalist lenders, issuers and purchasers of securities and bonds (including 
global  investors),  insurers,  and  even  government  agencies  can  be  involved  in  the 
purchase  of  a  single  home  by  a  single  EU  consumer.  The  importance  of  the  EU 
mortgage  credit  markets  cannot  be  overestimated  in  the  recent,  current  and  future 
economic climate. 

(8) 

For  most  EU  citizens,  the  purchase  of  their  home  represents  the  largest  purchase  in 
their lifetime. Most home purchases require a loan for part of the price. Such loans are 
usually,  but  not  always,  secured  by  a  mortgage.  This  debt  is  likely  to  be  the  most 
significant  on-going  financial  commitment  for  most  EU  households.  That  said,  the 
equity in the home can represent a substantial asset which may have the potential to be 
used  to  finance  consumption  or  retirement.  Thus  the  level  of  mortgage  debt  and  the 
contractual  characteristics  of  that  debt  can  play  a  direct  role  in  the  transmission  of 
monetary  policy  and  on  economic  activity  as  a  whole.  For  example,  contractual 
restrictions on or penalties for early repayment of the debt may delay the transmission 
of  changes  in  interest  rates  and  hinder  refinancing  in  such  circumstances.  This 
relationship  between  the  macro-economy  and  mortgage  debt  is  highly  significant, 
especially  in  flexible  mortgage  markets,  as  the  slightest  change  in  interest  rates  can 
have a significant effect on household budgets and spending capacity. This can have a 
noteworthy impact on debtors, with a potential knock-on effect, positive or negative, 
on their spending and asset levels. 

4 

For details on the Commission’s policy on poverty and social exclusion see 
http://europa.eu.int/comm/employment_social/social_inclusion/index_en.htm. 

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(9)  Most  EU  mortgage  markets  have  been  expanding  rapidly  in  recent  years.  In  many 
Member  States  outstanding  mortgage  debt  is  currently  at  historically  high  levels 
relative to GDP or household disposable income. The growth of mortgage lending has 
been fostered both by macro-economic factors (such as the fall in interest rates and the 
strong growth of house prices in some countries) and structural developments (such as 
the increasing liberalisation and integration of EU financial markets). However, what 
is  apparent  is  that  the  EU  mortgage  credit  markets,  despite  sharing  some  common 
trends,  remain  very  diverse.  Relative  sizes  vary,  as  does  growth.  Product  variety, 
borrower  profiles,  distribution  structures,  loan  durations,  home-ownership  rates  and 
funding mechanisms differ considerably. 

(10)  These differences in mortgage and housing markets reflect Members States’ attitude to 
regulation, economic history and cultural factors. Differences in outcomes are related 
to factors such as direct government intervention in housing markets (e.g. by means of 
fiscal incentives to home-ownership), prudential regulation (e.g. regulatory ceilings to 
Loan  to  Value  Ratios),  the  level  of  competition  in  mortgage  markets,  housing  rental 
market conditions (including the availability of social housing) and the perceived risk 
associated  with  mortgage  lending  (in  particular,  the  costs  and  the  time  required  to 
realise the collateral’s value in the event of default). 

(11)  Many external sources5 

and the Commission’s on-going consultation support the 
view  that  these  markets  are  not  very  integrated,  notably  in  relation  to  the  range  of 
available  products  and  cross-border  mortgage  activity,  while  price  differences 
(spreads) are already relatively low. A recent study6  came  to  the  conclusion  that  these 
markets were individual markets with their own characteristics and economic drivers. 
Also noted was little connection between national market participants in the primary 
and  the  secondary  markets,  other  than  global  investors  in  mortgage  bonds  and 
mortgage backed securities (MBS). The level of direct cross-border sales is low, less 
than 1% of overall residential mortgage credit activity7 
and largely confined to the 
purchase of holiday homes or border region purchases, both niche market sectors. 

(12)  So what are the potential benefits of such integration? The Commission’s out-sourced 
study will present and quantify these potential benefits, which have been highlighted 
elsewhere already.8  An overall lower cost of the mortgage or home loan could be a 
prime  potential  benefit.  Improved  product  completeness  in  ancillary  products  (e.g. 
example  mortgage  insurance  products),  as  well  as  in  core  mortgage  credit  products 
(e.g.  equity  release  products  and  flexible  mortgages)  is  a  potential  benefit.  The 
Commission follows with interest the emergence of such innovative products (they are 
currently present in only a handful of Member States), and is fully aware of the need 

5 

6 

7 
8 

Report of the Forum Group on Mortgage Credit, “The Integration of the EU Mortgage Credit Markets, 
DG  Internal  Market,  December  2004;  European  Financial  Integration:  Progress  and  Prospects, 
European  Commission  2004;  Study  on  the  Financial  Integration  of  European  Mortgage  Markets, 
Mercer Oliver Wyman for the European Mortgage Federation, 2003; International Trends in Housing 
Tenure  and  Mortgage  Finance,  Council  of  Mortgage  Lenders  2004;  Risk  and  Funding  in  European 
Residential Mortgages, Mercer Oliver Wyman for the Mortgage Insurance Trade Association (MITA) 
April 2005. 
Study  on  the  Financial  Integration  of  European  Mortgage  Markets,  Mercer  Oliver  Wyman  for  the 
European Mortgage Federation, 2003.  
Eurobarometer Report, 2004. 
See footnote 5. 

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to accompany such emergence with a high level of consumer protection. Another key 
benefit appears to be the potential to serve more borrowers, including those currently 
marginalised in many EU mortgage credit markets such as sub-prime borrowers (i.e. 
those  with  poor  or  incomplete  credit  ratings).  As  with  integration  in  other  financial 
services  sectors,  improved  economies  of  scale  are  certainly  possible.  Diversification 
across borders and through increased use of the capital markets and insurance markets 
could  also  serve  lower  credit  risk.  Finally,  there  is  potential  for  improved  capital 
efficiency, that is, the capacity for capital to move to those markets where it is most 
needed and rewarded. 

(13)  As part of its assessment of the case for action in the EU mortgage credit markets, the 
Commission has analysed the 48 recommendations of the Forum Group on Mortgage 
Credit,  which  it  created  in  March  2003  in  order  to  assess  the  barriers  to  further 
integration  of  the  EU  mortgage  credit  markets  and  propose  ways  to  address  them.9
 These  recommendations  cover  most  of  the  issues  relevant  to  the  integration  of  EU 
mortgage  markets.  The  Commission  is  determined  to  make  the  best  possible  use  of 
these recommendations in any action it may propose in the future. It is however clear 
that not all of these recommendations would require the same course of action and that 
some require more ground work before any decision can be made. 

(14)  The  Commission  shares  the  Forum  Group’s  view  that  integration  of  EU  mortgage 
credit  markets  necessitates  addressing  four  main  distinct  but  interrelated  areas: 
consumer protection, legal issues, collateral and funding. This Green Paper examines 
these four areas. The Commission welcomes views on all issues covered in this Green 
Paper, on any further issues considered key to the increased integration and efficiency 
of the EU mortgage credit markets, and on their prioritisation. 

II 

CONSUMER PROTECTION 

Information 

(15) 

Information  provision  is  a  crucial  issue  in  mortgage  transactions,  given  their 
complexity, relative high cost and long duration. A degree of information asymmetry 
between  the  average  borrower  and  provider  is  inevitable.  What  is  crucial  in  this 
context  is  that  the  borrower  is  provided  with  the  appropriate  level  of  information 
necessary  to  take  an  informed  decision,  in  a  manner  and  at  a  time  when  such 
information provision is most effective. 

(16)  The Code of Conduct10 

the  European  Standardised 
Information Sheet (ESIS), a precedent for standardising pre-contractual information at 
EU level.  The Commission has  initiated a review of the Code, including  an  external 
study11 which  indicated  that  implementation,  at  that  time,  was  not  satisfactory.  The 

has  created, 

through 

9 

10 
11 

EN 

http://europa.eu.int/comm/internal_market/finservices-retail/docs/home-loans/2004-report-
integration_en.pdf 
C(2001) 477. Voluntary Code of Conduct on Pre-Contractual Information for Home Loans. 
Monitoring  the  Uptake  and  Effectiveness  of  the  Voluntary  Code  of  Conduct  on  Pre-Contractual 
2003. 
Institute 
Information 
http://europa.eu.int/comm/internal_market/finservices-retail/docs/home-loans/home-loans-final-
report_en.pdf. 

Financial 

Services, 

Loans, 

Home 

for 

for 

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Commission will await the result of this consultation to make final decisions about the 
Code. But the following questions need to be addressed: 

•  Should  the  Code  of  Conduct  be  replaced  by  binding  legislation  or  remain 

voluntary? 

•  What information should be given to consumers? A careful balance must be found 

between information deficiency and information overload. 

•  The  Commission  considers  it  fundamental  that  pre-contractual  information  is 
provided at a stage that enables the consumer to shop around and compare offers. 
Can  such  a  common  EU  stage  be  identified,  given  the  variations  in  Member 
States’ traditions and legislations? 

•  Should an information provision regime apply only to lenders or to others such as 
brokers  too?  How  can  compliance  with  any  such  regime  (binding/voluntary)  be 
ensured? 

Advice Provision and Credit Intermediation 

(17)  Mortgages are complex high value products. Advice on them tends to be sought more 
often  than  on  most  other  financial  services  products.  Different  kinds  of  consumers 
may  have  different  kinds  of  needs  from  their  providers  and  different  kinds  of 
relationships with them. 

(18)  The  Commission  is  aware  of  the  potential  consequences  of  compulsory  advice 
provision on product pricing (by direct charge or through indirect affect on the product 
price)  and  on  lenders’  potential  exposure  to  legal  risks.  But  it  is  aware  also  of  the 
important role adequate advice provision can play on consumer confidence and in the 
prevention of problems such as over-indebtedness. 

•  Should the provision of advice to the borrower be made compulsory or be a matter 

of choice? 

•  Should  conditions  be  applied  to  any  advice  actually  provided,  whether  under  a 
duty  or  by  choice  (e.g.  standards  for  the  advice,  sanctions  for  non-compliance, 
advance  disclosure  of  fees,  of  the  adviser’s  role  and  recording  on  durable 
medium)? 

(19)  Credit intermediation has been highlighted recently as an area that will be particularly 
It  will  be  addressed  on  a  horizontal  level  and 

scrutinised by the Commission.12 
input will be sought on this in due course. 

Early Repayment 

(20)  Early  repayment  of  the  loan  is  a  crucial  aspect  of  the  mortgage  credit  bargain.  The 
lengthy  duration  of  mortgage  contracts  and  the  change  of  key  contract  conditions  in 
this  duration  (e.g.  interest  rate  changes)  may  motivate  the  consumer  to  seek  a 

12 

See footnote 3. 

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premature exit from the credit contract. Early repayment fees (ERFs) are the price to 
be paid by the consumer for this premature exit. 

(21)  Early repayment regimes vary widely across Member States. In some they are highly 
regulated and in others they are a matter of private contract law between consumer and 
lender,  with  the  consumer  only  having  a  choice  between  different  kinds  of  standard 
contracts  and  mortgages,  as  opposed  to  a  real  opportunity  to  negotiate  individual 
terms. ERFs are generally attached to fixed interest rate mortgage products, protecting 
consumers  against  interest  rate  changes,  with  the  fee  applying  to  a  departure  during 
this ‘fixed’ period. ERFs are said to reflect the funding structures in place to support 
the  product(s)  on  offer,  and  have  a  direct  impact  on  competition  and  on  product 
diversity  and  availability.  They  influence  the  transmission  of  macro-economic 
changes,  that  is,  whether,  to  what  extent  and  how  changes  in  the  base  (interest)  rate 
can affect mortgage debtors. 

(22)  The  Commission  considers  that  some  level  of  consistency  in  the  area  of  early 
repayment, notably on the imposition of fees, could facilitate integration. But how can 
such  consistency  be  achieved  without  adversely  affecting  funding  structures  and  the 
range  of  product  choice,  or  disproportionately  penalising  consumers?  The  following 
questions merit close analysis: 

•  Should early repayment be a legal right or a matter of choice? If it is to be a right, 
should  it  also  be  made  possible  for  a  consumer  to  waive  this  right?  Under  what 
conditions? Should this right be subject to a compensation in the form of fees? 

•  How  should  such  fees  (whether  under  a  right  or  through  contractual  choice)  be 

calculated? Should there be caps, as is the case in some Member States? 

•  How should the consumer be informed about early repayment? Is there scope for 

consumer education here? 

Annual Percentage Rate 

(23)  The  Annual  Percentage  Rate  (APR)  on  a  mortgage  loan  is  another  key  factor,  the 
effects of which persist for the duration of the contract. Calculation of mortgage APRs 
and the cost elements which enter into such calculations vary across Member States, 
making comparisons more difficult. 

(24)  Given  the  particular  nature  of  such  credit  contracts  in  comparison  with  consumer 
credit contracts, it could merit a tailored approach. This is an area where it appears that 
some  degree  of  standardisation  could  favour  market  integration.  But  many  questions 
arise: 

•  What is the purpose of an APR? Information? Comparison? Both? 

•  Should  there  be  an  EU  standard  covering  both  the  calculation  method  and  the 

costs elements? 

•  If so, what kinds of cost elements should such an EU standard include? 

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•  The  Commission  welcomes  views  on  the  merits  of  providing  separately 
information on all costs not specified in the APR, and on the presentation of the 
effects of the APR in concrete terms such as the cost per month or the overall cost 
of the loan. 

(25)  Any  decision  here  will  be  made  taking  due  account  of  the  regime  which  will  be 

followed in the area of consumer credit. 

Usury Rules and Interest Rate Variation 

(26)  Some  Member  States  have  legally  enforceable  caps  on  interest  rates,  often  termed 
‘usury’ rules where they are designed to prevent the charge of excessively high interest 
rates.  The  Commission  has  abstained  from  any  intervention  in  this  area,  which 
involves important social considerations. 

•  What  are  the  implications  of  usury  rules  for  market  integration  (including  any 

relationship with products such as equity release and mortgage insurance)? 

•  Should this issue rather be examined in a broader, non-mortgage specific, context? 

(27)  On interest rate variation caps, the Commission remains to be convinced on the extent 
to which they could hinder market integration or the development of particular funding 
structures. 

(28)  Finally,  the  Commission  notes  that  some  Member  States  impose  restrictions  on  the 

imposition of compound interest rates. 

•  Do such restrictions hinder market integration? 

•  What  impact  can  they  have  on  the  development  of  particular  products  such  as 

equity release products? 

Credit Contract 

(29)  Standardisation  of  contract  terms,  as  recommended  by  the  Forum  Group,  must  be 
assessed  in  the  broader  framework  of  the  Commission’s  European  Contract  Law 
initiative.13 
Standardisation could be achieved either by classical harmonisation or 
by  way  of  a  so-called  26th  regime.  This  26th  regime  could  be  introduced  by  a  legal 
instrument sitting alongside, but without replacing, national rules, and available as an 
option  to  the  parties  to  a  contract.  The  Commission  has  undertaken  to  explore  the 
merits  of  the  26th  regime  concept  in  its  recent  Green  Paper  on  Financial  Services 
Policy.14 

The  Commission  welcomes  views  on  the  merits  of  the  standardisation  of  mortgage 
contracts, e.g. via a 26th regime instrument. 

13 
14 

COM(2004) 651. European Contract Law and the Revision of the acquis: the way forward. 
See footnote 3. 

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Enforcement & Redress 

(30)  The  Commission  is  mindful  that  traditional  judicial  redress  mechanisms  can  be 
lengthy  and  costly  for  most  consumers.  It  considers  that  any  alternative  means  of 
redress such as mediation or arbitration must be independent and efficient in order to 
be trusted by consumers, particularly in a cross-border context. The Commission has 
already undertaken work to promote the use of mediation by proposing a Directive on 
aspects of mediation in civil and commercial matters.15 

•  Should  the  Commission  consider  imposing  on  Member  States  an  obligation  to 
ensure  the  existence  of  such  alternative  means  of  redress  in  the  mortgage  credit 
area? 

•  The Commission welcomes views on ways to reinforce the credibility of existing 

alternative redress systems, particularly in the mortgage credit area. 

III 

LEGAL ISSUES 

Applicable Law 

(31)  The 1980 Rome Convention, which governs the determination of the law applicable to 
contracts  including  mortgage  credits,  is  currently  undergoing  a  revision  process  in 
order  to  transform  it  into  an  EU  Regulation.  The  Commission  considers  it  advisable 
and consistent to address all issues of applicable law, including the law applicable to 
mortgage credit contracts, within the context of this process. 

(32)  As of today, at least three potential solutions have been identified within this process: 

•  Provide for a specific regime for the law applicable to consumer mortgage credit 
contracts  in  the  future  Regulation.  This  could  consist  of  aligning  the  law 
applicable to the mortgage credit contract with the law applicable to the collateral 
contract. 

•  Continue to subject mortgage credit contracts to the general principles which, in 
the Rome Convention as it stands, would mean essentially that parties can freely 
decide  on  the law  applicable to their  contract, subject to the application – under 
some conditions – of the mandatory rules of the consumer’s country of residence. 

•  Exclude the application to a consumer mortgage credit contract of the consumer’s 
mandatory  protection  rules,  provided  that  some  conditions  are  met,  for  example 
that there is a high level of consumer protection in place at EU level. 

(33)  On  the  law  applicable  to  the  collateral,  the  Commission  sees  a  priori  no  reason  to 
depart  from  the  well  established  principle  that  the  law  of  the  country  in  which  the 
property is situated applies. 

15 

COM(2004)  718  final.  Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on 
certain aspects of mediation in civil and commercial matters. 

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Client Credit-Worthiness 

(34)  Evaluation  of  client  credit-worthiness,  i.e.  of  the  credit  risk  posed  by  the  client,  is  a 
crucial aspect of the mortgage credit transaction, which could permit reductions in risk 
capital linked to higher levels of risk assessment by lenders. This is an area where data 
protection concerns are of paramount importance. 

(35)  Member  States  have  different  regimes  for  compilation  of  and  access  to  credit-
worthiness  databases:  public  or  private,  centralised  or  decentralised,  positive  or 
negative (defaults only). 

(36)  There  may  be  circumstances  where  arrangements  for  data  sharing  between  lenders 
exclude some market participants in a way that could amount to a breach of EU law. In 
addition,  access  conditions  may  in  effect  discriminate  against  foreign  lenders  (e.g. 
membership or subscription rates which are not cost-effective for lenders not accessing 
databases  with  the  same  frequency  as  national  lenders,  or  reciprocity  rules  requiring 
submission of relevant data as a pre-condition of access). 

Following the same approach as for consumer credit, the Commission considers that 
the  priority  could  be  to  ensure  cross-border  access  to  databases  on  a  non-
discriminatory basis. It welcomes comments on this. 

Property Valuation 

(37)  Valuation of property is central to the mortgage credit transaction and the way that it is 
used can directly affect the nature, the funding and the prudential rules applicable to 
the  credit.  Lenders,  consumers  and  investors  must  have  full  confidence  in  the 
qualifications of the valuer, the valuation process and the resulting figure. 

(38)  Valuation  traditions  vary  between  Member  States.  There  are  currently  several 
international valuation regimes.16 
that  valuation 
comparability  could  be  enhanced  in  order  to  ensure  that  such  variety,  which  may  be 
linked  to  genuine  needs  in  domestic  housing  markets,  does  not  inhibit  cross-border 
activity  on  the  lending  or  the  funding  side.  Obviously  this  could  be  achieved  by 
institution  of  a  single  standard,  but  the  coexistence  of  competing  but  mutually 
recognised standards could fulfil the same objective. 

The  Commission  considers 

•  What  are  the  merits  of  a  single  EU  standard,  for  both  valuation  processes  and 

valuers? 

•  What  are  the  merits  of  Commission  action  to  ensure  mutual  recognition  of 

national valuation standards? 

Forced Sales Procedures 

(39)  The  security  constituted  by  the  collateral  is  a  central  aspect  of  mortgage  credit 
transactions,  as  is  the  ability  to  foreclose  the  loan  and  call  upon  that  security,  e.g. 
through a forced sale of the mortgaged property. 

16 

See footnote 28 in the Forum Group Report. 

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11 

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(40)  Forced sales procedures vary widely in duration and cost throughout Member States. 
The Commission notes the interaction with Member State housing and social policies, 
as well as the complex context of forced sales procedures which are affected by many 
diverse factors such as Member State laws, civil procedures and judicial traditions. 

(41)  The  Commission  is  concerned  that  such  variety  could  have  the  effect  of  hindering 
cross-border  activity  and  perhaps  adding  to  the  price  of  the  mortgage  credit.  More 
fundamentally,  such  variety  could  have  a  direct  impact  on  funding  structures,  in 
particular by inhibiting the cross-border pooling of mortgage collateral. 

(42)  The  Commission  is  nevertheless  aware  of  the  difficulties  of  achieving  significant 
improvements on all aspects of forced sales procedures through binding EU rules. 

The  Commission  seeks  views  on  the  following  gradual  approach  to  encourage 
improvements in forced sales procedures: to first collect information on the cost and 
duration  of  these  procedures  in  all  Member  States  and  their  effectiveness  in 
protecting  the  interests  of  all  involved,  then  present  it  in  a  regularly  updated 
“scoreboard”  and,  should  this  prove  ineffective  in  the  long  run,  consider  putting 
forward more robust measures. 

Tax 

(43)  The Commission takes action against national mortgage taxation rules which are not 
compatible with EU law. Annex I provides details of potential infringements such as 
the refusal of tax deduction for interest paid to foreign providers where interest paid to 
domestic providers would be tax deductible, or higher taxation of such interest. 

The  Commission  seeks  information  on  similar  or  other  tax  obstacles  to  the  cross-
border provision of mortgages, which are likely to infringe the freedoms provided for 
by EU law. 

IV 

MORTGAGE COLLATERAL 

Land Registers 

(44)  Land registers record and to a certain extent determine legal property ownership rights. 
There  is  concern  that  such  registers  do  not  always  reflect  accurately  all  charges  that 
could  affect  property  ownership  rights.  An  understanding  of  their  contents  and 
operation,  as  well  easy  access  to  them,  is  crucial  for  cross-border  mortgage  credit 
activity of any kind (including funding). 

(45)  This has already been recognised by the Commission through its funding of the pilot 
phase  of  the  EULIS  project17,  now  concluded,  which  sought  to  enhance  cooperation 
between owners and controllers of registers and facilitate cross-border access to them. 

(46)  The Commission questions whether it should continue to play an active funding role in 
such  initiatives.  Given  the  use  of  such  registers  by  lenders  and  investors,  one  can 

17 

See www.eulis.org for further details. 

EN 

12 

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assume that they would have a direct interest in contributing to and investing in such 
initiatives. 

Before  making  further  assessments,  the  Commission  would  welcome  input  on  all 
these issues. 

Euromortgage 

(47)  The  idea  of  a  Euromortgage  is  not  new.  It  is  an  attempt  to  create  an  EU-wide 
instrument for securing loans on property, that is, for the mortgage collateral, which 
can  be  used  in  a  flexible  way.  Its  proponents  argue  that  its  central  aspect  –  the 
weakening of the link (‘accessoriness’) between the mortgage collateral and mortgage 
credit  –  would  facilitate  the  creation  and  transfer  of  mortgages,  thereby  having  a 
beneficial  impact  on  the  mortgage  credit  market  as  a  whole,  in  particular  on  its 
funding. 

(48)  The  Commission  is  aware  of  market  participant  and  academic  led  projects,  aimed  at 
designing a workable Euromortgage model in the form of a 26th regime.18  The 
Commission  will  review  how  these  initiatives  propose  to  deal  with  such  a  complex 
issue, which touches upon many other related areas such as property law and contract 
law. 

The  Commission 
the 
Euromortgage.  It  will,  in  any  event,  await  the  outcome  of  ongoing  initiatives  to 
inform its assessment of this issue. 

the  feasibility  and  desirability  of 

invites  views  on 

V 

FUNDING OF MORTGAGE CREDIT 

(49)  Funding instruments in EU mortgage markets are diverse. Specific instruments such as 
covered  bonds  and  mortgage  backed  securities  play  an  important  role  in  a  pan-
European  as  well  as  national  context  (for  example  UK  Mortgage  Backed  Securities, 
Danish covered bonds and German Pfandbriefe). 

(50)  Many,  in  particular  the  Forum  Group  on  Mortgage  Credit,  express  the  view  that  the 
further integration of the EU mortgage markets could be considerably enhanced by the 
emergence of a pan-European funding market. 

(51)  The Commission would tend to share this view. But this premise clearly merits further 
in-depth  analysis.  Pan-European  funding  mechanisms  have  the  potential  to  increase 
sources of funding, deepen the liquidity of the market and more generally allow for the 
diversification of risk. Further integration of the secondary markets in loan funding is 
linked  to  the  integration  of  the  primary  market.  A  key  aspect  that  cuts  across  both 
areas is transferability of mortgage loans. 

18 

For  example:  “Basic  Guidelines  for  a  Eurohypothec”,  Mortgage  Credit  Foundation,  Warsaw,  May 
2005. 

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•  The  Commission  intends  to  create  an  ad  hoc  stakeholders  working  group  to 
examine  the  need  for  and  nature  of  action  on  the  funding  aspects  (primary  and 
secondary) of mortgage credit. 

•  It  is  interested  to  assess  to  what  extent  a  pan-European  market  in  mortgage 
funding  can  be  promoted  by  market  led  initiatives,  e.g.  on  documentation 
standards and model definitions to be used in cross-border funding activities. 

(52)  The Forum Group and other sources predict the growth of non-deposit based mortgage 

loan funding mechanisms. 

In this respect, the Commission is interested to receive views on whether mortgage 
lending should necessarily be an activity which is restricted to credit institutions, or 
whether and under which conditions such activity could be performed by institutions 
which  do  not  take  deposits  or  repayable  sums,  and  therefore  do  not  fall  within  the 
scope  of  the  EU  definition  of  a  credit  institution  and  therefore  of  all  related 
prudential rules. 

EN 

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ANNEX I –  
RESPONSE TO GENERAL FORUM GROUP RECOMMENDATIONS 

This Annex contains the Commission’s views on issues addressed in the Forum Group 
Report, which do not fall within the scope of the four areas covered by the Green Paper. 

Definition of cross-border lending 

(1) 

The  Commission  is  not  clear  as  to  why  this  definition  is  needed.  It  assumes  that  it 
would be useful for the purpose of measuring integration. The Commission considers 
that  there  is  cross-border  lending  whenever  a  service  crosses  a  border,  be  it  through 
free  provision  of  services,  through  an  establishment  (branch  or  subsidiary)  or  via  an 
agent. 

Research on the costs and benefits of further integration 

(2) 

The Commission has already recognised the merits of such a course of action. It has 
commissioned an independent study on the costs and benefits of further integration of 
the EU mortgage credit markets. This study has delivered interim results, which have 
been taken into account in the formulation of this Green Paper. The final study will be 
published by the Commission in August 2005.19 

On-line guide on mortgage lending 

(3) 

Such a project would be very time and resources consuming. Moreover, it would not 
seem  to  be  the  Commission’s  role  to  provide  information  and  indeed  guidance  on 
complex  legal  issues  on  which  there  can  be  conflicting  views.  However,  the 
Commission  will  ensure  that  any  useful  information  on  mortgage  credit  (such  as 
studies,  reports  etc.)  available  to  it,  and  which  can  be  publicised,  is  placed  on  its 
website. 

Exclusion of all secured loans from the Consumer Credit Directive proposal 

(4) 

It  is  intended  that  all  loans  secured  on  property  by  a  mortgage  or  a  similar  surety, 
regardless  of  their  purpose,  will  be  excluded  from  the  Commission  proposal  for  a 
Directive on Consumer Credit. Therefore, such loans will be covered by any initiatives 
resulting from the process of which this Green Paper forms part. 

Legislative consistency, especially in relation to information requirements 

(5) 

Consistency  in  regulation  is  one  of  the  major  themes  in  the  post  FSAP  era,  as 
illustrated in the recent Green Paper on Financial Services Policy20  which 
highlights 
rationalisation  of  information  requirements  in  EU  legislation  as  an  issue  to  be 
addressed. The Commission has launched work on a Common Frame of Reference in 
the area of European Contract law.21  Its  purpose  is  to  ensure  increased  consistency 
within  the  existing  and  future  contract  law  related  acquis,  including  on  information 
requirements. 

19 
20 
21 

See footnote 1 in the body of the Green Paper. 
See footnote 3 in the body of the Green Paper. 
See footnote 13 in the body of the Green Paper. 

EN 

15 

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Banking Services 

Branches 

(6) 

Banking services can be provided on the basis of a harmonised framework establishing 
equal  conditions  of  treatment  for  domestic  and  foreign  EU  credit  institutions.  The 
Commission takes action if such provisions are contravened. Any instances of unequal 
treatment in this regard should be reported to it. 

Representative Offices 

As far as the Commission is aware, there are no barriers to the establishment of purely 
representative  offices.  However,  representative  offices  cannot  conduct  banking 
business.  If  they  do,  they  fall  within  the  regulation  of  branches,  on  which  see 
paragraph 6 above. 

(7) 

Tax 

(8)  Member  States  are  free  to  determine  their  own  rules  on  mortgage  taxation,  in  the 
absence of any harmonisation in this area. The Commission has no plans to propose 
such  harmonisation.  However,  when  designing  mortgage  taxation  rules,  Member 
States have to respect their obligations under EU law, and the Commission will take 
action where it believes that EU law is infringed. 

Higher taxation of foreign mortgage providers 

(9) 

(10) 

Since  the  publication  of  the  Forum  Group  Report,  the  Commission  has  launched  an 
infringement  procedure  concerning  national  rules  which  tax  outbound  mortgage 
interest payments more heavily than domestic mortgage interest payments. 

In the case at issue, no withholding tax is levied on interest paid to resident financial 
institutions. The interest they receive is subject to national corporate income tax. This 
means  that  domestic  providers  pay  tax  on  the  net  interest  they  receive,  that  is,  the 
interest they receive minus the interest they paid to acquire the necessary capital. By 
contrast,  non-resident  financial  institutions  are  subject  to  a  withholding  tax  on  the 
gross amount of the interest due. The withholding tax on outbound interest payments 
may be considerably higher than the corporation tax on domestic interest payments. 

(11)  The  Commission  is  of  the  opinion  that  such  national  rules  restrict  foreign  financial 
institutions  from  offering  their  services  in  the  Member  State  concerned,  and  the 
Commission  does  not  see  a  justification  for  such  rules.  They  therefore  appear  to  be 
contrary  to  Articles  49  and  56  of  the  Treaty  (and  the  corresponding  EEA  Treaty 
provisions) on the freedom to provide services and the free movement of capital. 

Deductibility of mortgage interest 

(12)  Another  issue  is  the  tax  deductibility  of  mortgage  interest  payments.  A  number  of 
Member  States  allow  their  residents  to  wholly  or  partially  deduct  mortgage  interest 
payments  from  their  taxable  income.  It  should  not  make  a  difference  whether  the 
mortgage interest is paid to a domestic provider or to a provider established in another 
Member State, as this would be contrary to Articles 49 and 56 of the Treaty (see Case 
C-484/93 of 14 November 1995 and Case C-478/98 of 26 September 2000). 

EN 

16 

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Internet 

(13)  Physical  presence  and/or  written  processes  are  still  prevalent  in  mortgage  credit 
transactions.  The  Internet  tends  to  be  used  mainly  for  seeking  information  and 
compare  products.  There  is  little  if  any  actual  contracting  on-line  in  most  Member 
States.  However,  as  far  as  the  Commission  is  aware,  the  provisions  of  the  E-
Commerce Directive22 and related legislation have addressed the main legal barriers to 
concluding such contracts on-line. 

22 

Directive 2000/31/EC of 8 June 2000, OJ L 178 of 17.7.2000 p. 1. 

EN 

17 

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ANNEX II –  
TEXT OF FORUM GROUP REPORT RECOMMENDATIONS 

INTRODUCTION 

1. 

The  Commission  should  adopt  a  definition  of  cross-border  lending  and  monitor  it 
with statistical data. 

CONSUMER CONFIDENCE 

Common Recommendations 

2. 

3. 

4. 

5. 

6. 

7. 

There  should  be  Commission  funded  research  on  the  costs  and  benefits  of  further 
integration of the mortgage credit market. 

Provision  of  the  kind  of  information  currently  provided  by  means  of  the  European 
Standardised  Information  Sheet  created  by  the  Code  of  Conduct  should  be 
encouraged by the Commission and at a stage which facilitates use and comparison 
of such information. 

Consumer  Representatives 
advocate 
harmonisation by the Commission of Early Repayment Fees. There is divergence on 
the  nature  of  such  harmonisation.  For  further  details  see  Recommendations  10  and 
18. 

Industry  Representatives 

and  most 

There  should  be  harmonisation  by  the  Commission  of  the  Annual  Percentage  Rate 
Charge  (APRC),  in  relation  to  both  the  method  of  calculation  and  the  basis  of 
calculation.  There  is  divergence  on  the  nature  of  such  harmonisation.  For  further 
details see Recommendations 11 and 16. 

There  should  be  Commission  funded  research  on  the  value  from  a  consumer 
perspective  of  pre-contractual  information  of  the  kind  provided  by  the  European 
Standardised Information Sheet created by the Code of Conduct. 

The Commission should create and maintain an on-line guide on the main legal and 
other issues on cross-border mortgage lending. 

Specific Consumer Representative Recommendations 

8. 

9. 

The  Commission  should  encourage  efforts  to  produce  a  standardised  format  for 
mortgage loan contracts. 

The  Commission  should  introduce  binding  consumer  protection  rules  for  mortgage 
loan contracts on a minimum harmonisation basis, set at the highest level, covering 
the following areas: 

•  Duty to give ‘best possible advice’. The demands and needs of consumers and the 
underlying reason for all mortgage credit advice given to consumers regardless of 
source (including branches and intermediaries) should be specified to consumers 
on a durable medium. 

•  The right of the consumer to redress (judicial and extra-judicial). 

EN 

18 

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•  The  provision  of  pre-contractual  summarised  information  at  the  earliest  stage  of 
contact  between  the  consumer  and  the  lender  or  intermediary  showing  in  a 
standardised  European  Standardised  Information  Sheet  type  format:  commission 
charges,  administration  or  handling  charges,  total  amount  borrowed  and  payable 
(including  APRC,  calculation  rate,  compound  period,  operation  of  variable 
interest rates and total interest payable), the cost of bundled products (direct and 
the impact on interest), form of product, the exposure period and cost of the Early 
Repayment  Fee  (including  worked  examples  of  the  charge)  and  amortisation 
tables. 

The Commission should ensure that consumers are afforded the right to terminate a 
mortgage agreement at any time and in any circumstances. Any charge levied on the 
consumer seeking to exercise this right must be: (a) appropriate in length of exposure 
(i.e. Early Repayment Fee charged beyond the first few years of the agreement must 
not be allowed); (b) calculated in a fair and objective manner to reflect the cost (if 
any)  incurred  by  the  lender  in  the  wholesale  markets  and  subject  to  a  statutory 
ceiling;  and  (c)  clearly  indicated  in  the  pre-contractual  summary  document  using 
worked examples. 

There  should  be  harmonisation  by  the  Commission  of  the  Annual  Percentage  Rate 
Charge,  in  relation  to  both  the  method  of  calculation  and  the  basis  of  calculation. 
Consumer Representatives favour a broad definition including all associated charges, 
and minimum harmonisation. 

The  Commission  should  ensure  that  redress  and  enforcement  mechanisms/binding 
rules  offer  consumers  a  minimum  equivalent  protection  throughout  the  EU,  at  the 
very least at the highest level currently in existence. 

10. 

11. 

12. 

Specific Industry Representative Recommendations 

13. 

14. 

15. 

16. 

The  Commission  is  invited  to  exclude  all  secured  loans  from  the  Consumer  Credit 
Directive proposal, in line with the European Parliament First Reading, to ensure that 
mortgages are not subject to two separate legal regimes. 

In  those  jurisdictions  which  have  binding  rules  on  pre-contractual  information  for 
mortgage  credit  offers,  the  Commission  should  ensure  that  such  rules  are  aligned 
with  the  European  Standardised  Information  Sheet  format,  so  that  only  one  set  of 
rules apply. 

The Commission should ensure that the Code of Conduct continues to be maintained, 
in its current form of self-regulation. In any event, before any further assessment of 
its  operation,  the  methodology  for  such  assessment  should  be  discussed  by  all 
stakeholders. 

The Commission should harmonise the Annual Percentage Rate Charge, in relation 
to  both  the  method  of  calculation  and  the  basis  of  calculation.  Industry 
Representatives favour a narrow definition restricted to costs levied by the lender for 
its benefit at the time of the granting of the loan, and full harmonisation. 

17. 

The Commission should ensure that legally enforceable caps on interest rates and on 
the variation of interest rates are removed. 

EN 

19 

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18. 

The  Commission  should  ensure  that  legally  enforceable  caps  on  Early  Repayment 
Fees  are  removed.  There  is  support  amongst  some  Industry  Representatives  for  a 
proposal that there should be full harmonisation of the conditions for exercising the 
right of early repayment, especially for fixed interest rate loans, and limitation of that 
right  to  circumstances  involving  sale  of  the  property,  unemployment  or  death.  All 
Industry  Representatives  advocate  that  lenders  should  be  entitled  to  ask  for  full 
compensation of losses (especially those linked to funding) and costs resulting from 
the early repayment. 

LEGAL ISSUES 

19. 

20. 

21. 

The Commission should ensure that the applicable (substantive) law for the mortgage 
deed  and  any  related  security  agreement  is  the  law  of  the  Member  State  where  the 
property is located (lex rei sitae). 

Industry  Representatives  advocate  that  the  Commission  should  ensure  that  the 
applicable law for the mortgage loan contract is defined by a general conflict of law 
rule  based  upon  the  principle  of  free  choice.  The  Rome  Convention  should  be 
amended  accordingly,  provided  that  certain  essential  standards  are  met.  Member 
States should no longer be able to seek to impose any additional national consumer 
protection  rules  to  cross-border  mortgage  loan  contracts.  For  further  details  see 
Recommendations 13–18 on Consumer Confidence. 

Consumer Representatives do not agree with Recommendation 20 that the applicable 
law for the mortgage loan contract should be defined by a general conflict of law rule 
based on the principle of free choice and accordingly reject the proposal for such an 
amendment  of  the  Rome  Convention.  Instead  they  recommend  the  retention  of  the 
specific  rules  on  consumer  protections  contained  within  the  Rome  Convention  and 
advocate the additional protection described in Recommendations 8–12 on Consumer 
Confidence. 

22. 

The Commission should implement a short-term solution consisting of: 

•  collecting information on existing credit databases in all Member States 

•  promoting  the  development  of  a  Memorandum  of  Understanding  between  the 
owners/controllers of such databases, to facilitate access to national databases by 
foreign lenders on the same conditions as the access offered to domestic lenders 
and to facilitate data comparability; and 

•  developing  a  project  to  assess  the  effectiveness  of  the  Memorandum  of 

Understanding during a pilot phase of 3–5 years. 

23. 

24. 

The  Commission  should  consider  how  to  encourage  Member  States  to  develop 
positive  (client  indebtedness)  as  well  as  negative  (level  of  default(s))  databases, 
taking into account the costs and benefits of such databases. 

Industry Representatives advocate that the Commission should ensure that a financial 
institution which lends cross border is allowed to: 

EN 

20 

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•  accept  valuations  prepared  according  to  internationally  recognised  valuation 
standards  of  its  choice,  without  being  subject  to  additional  national  conditions; 
and 

•  instruct  any  valuation  practitioner  who  is  a  member  of  an  internationally 
recognised  valuation  body  to  carry  out  the  valuation,  without  being  subject  to 
additional national conditions. 

Industry Representatives advocate that the Commission should ensure that a financial 
institution which lends  cross border,  and the valuer based in  the country where the 
property  is  located,  are  able  to  accept  mandatory  regulations  for  standards  or 
practitioners prevailing in either of their respective countries (mutual recognition of 
regulations). 

Consumer Representatives advocate instead that the Commission should ensure that 
neutral  international  valuation  standards  prevail,  or  that  there  exists  a  single 
valuation standard ensuring comparability. 

The  Commission  should  recommend  that  high  standards  of  valuation  be  made 
mandatory  and  that  all  valuation  reports  should  consider  core  risk  related  criteria 
such as those recommended by the European Mortgage Federation (set out in Annex 
IV of the Forum Group Report) where applicable. 

25. 

26. 

27. 

28. 

The Commission should first: 

•  Perform an evaluation exercise of forced sales procedures within one year. 

•  Thereafter, monitor the functioning of forced sales procedures and assess results 
every three years. These results should be presented in the form of an official EU 
scoreboard on duration and cost of forced sale procedures in every Member State 
and lead to Commission advice/action for improvements. 

29. 

Thereafter, if necessary, the Commission should promote measures to ensure that the 
duration of a forced sale procedure should not exceed a specified term, for example 
two years after the first step in the forced sale procedure. 

COLLATERAL ISSUES 

30. 

The Commission should ensure that: 

•  all charges affecting real estate must be registered in a Public Register in order to 

be binding on and take effect against third parties, regardless of their nature 

•  the creation, modification or extinction of a charge on real property shall become 
effective  vis-à-vis  third  parties  only  at  the  point  of  registration  in  the  Public 
Register; and 

•  registered charges on real property in relation to the same estate shall rank in the 

order of priority disclosed in the Public Register. 

31. 

For filings of applications for registration/notification, the Commission should allow 
Member States to decide that priority be determined according to the time at which 

EN 

21 

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32. 

33. 

34. 

35. 

36. 

37. 

the  application  was  received  (not  actual  registration).  In  this  scenario,  the  Member 
State should ensure that filings of applications must be registered or rejected by the 
Public Register in the order of receipt. 

The Commission should ensure that Public Registers make all relevant information 
available to all parties or their representatives. 

The  Commission  should  ensure  that  Member  States  provide  that  the  responsible 
Public  Register  certifying  authority  should  have  state  indemnity.  In  the  event  that 
such  responsibility  is  delegated  to  a  third  party,  such  party  shall  be  covered  by 
appropriate professional liability insurance for an adequate sum. 

The  Commission  should  ensure  that  Member  States  do  not  maintain  or  institute 
additional ‘legalisation’/’validation’ requirements, for authentic instruments formally 
drawn up in other Member States. 

More  generally,  the  Commission  should  provide  financial  support  to  the  EULIS 
initiative, to enable and encourage its expansion across the EU. 

The Commission should ensure that links between mortgage debts and the collateral 
security are made more flexible. In countries where there is an existing requirement 
for strong accessoriness between the loan and the collateral, this should be replaced 
by an accessoriness agreement in the form of a private agreement between the lender 
and the owner of the mortgaged property. The relationship between the loan and the 
collateral can be dealt with in such a way as to allow it to be tailored to fit the needs 
of the parties. 

The  Commission  should  ensure  that  Member  States  allow  the  lender  or  any 
beneficiary  of  a  charge  on  real  property,  to  appoint  a  representative  (Mortgage 
Register  Representative)  vis-à-vis  the  Public  Register.  His/her  position  should  be 
disclosed  on  the  Register  and  not  have  any  effect  on  the  legal  framework  of  the 
Register. He/she should be entitled: 

•  to establish any abstract of title 

•  to consent to a change in the respective ranking of charges over the real estate in 
question and to grant preferential rights between beneficiaries as shall be deemed 
appropriate 

•  to consent to, apply and file any registrations and notifications 

•  to consent to any change or transfer of the charge on behalf of (and in the name 

of) the owner of the charge; and 

•  to  act  on  behalf  of  the  owner  of  the  charge  in  relation  to  the  discharge  or 

cancellation of the charge. 

38. 

The  Commission  should  explore  the  concept  of  the  Euromortgage,  for  example  by 
way  of  a  study,  to  assess  its  potential  to  promote  EU  mortgage  credit  markets 
integration. 

EN 

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39. 

The Commission should encourage Member States to increase the transferability of 
mortgages by introducing pan-European Security Trust instruments. 

DISTRIBUTION ISSUES 

40. 

41. 

42. 

43. 

44. 

The Commission should assess and ensure equal treatment of local banks and foreign 
banks on the basis of the same business, same risks, and same rules principle. 

The  Commission  should  revise  the  legislation  covering  cross-border  services  and 
establishment  of  branches  to  include  the  establishment  of  representative  offices,  in 
order to ensure that there are no disproportionate barriers to the establishment of such 
offices. 

introduce  a  supervisory  system  for 

The  Commission  should 
independent 
intermediaries along the following principles: registration with a competent authority 
in  the  home  Member  State;  possession  of  appropriate  professional  knowledge  and 
ability  (to  be  determined  by  home  Member  State  including  requirement  that  the 
intermediary to be ’fit and proper’); possession of professional indemnity insurance 
and a complaint/redress scheme in line with requirements for other intermediaries to 
ensure consistency. In addition, Consumer Representatives advocated that under such 
a  system  there  should  be  declaration  at  the  outset  of  the  relationship  between 
consumer and intermediary of all payments including every commission/fee, and that 
records should be kept of any information/advice given to consumers. In the context 
of this Recommendation, Consumer Representatives pointed to the need to consider 
their Recommendation 9, in particular, with its reference to a ‘best advice’ standard. 

The  Commission  should  review  what  mortgage  transaction  actions  require  written 
processes  and/or  a  physical  presence  generally  and  review  money  laundering 
legislation in particular, to address current legal barriers to greater Internet use. 

The  Commission  should  ensure  consistency,  especially  in  relation  to  information 
requirements, between different directives affecting financial services products. 

FINANCE 

45. 

46. 

47. 

48. 

The  Commission  should  harmonise  legislation  regarding  segregation  of  assets,  in 
order  to  ensure  equal  access  to  securitisation  for  originators  located  in  different 
jurisdictions. 

The Commission should enact legislation that recognises the legal separateness of a 
securitisation  vehicle  from  an  originator  of  assets 
the 
insolvency/bankruptcy of such an originator, even if the securitisation vehicle is part 
of the same group of companies as the originator. 

the  event  of 

in 

The Commission should investigate and address tax distortions, in order to ensure the 
removal of differences in fiscal treatment between local and foreign lenders. 

The Commission should investigate and address national legislation which prevents 
or hinders the pooling of mortgage collateral from different issuers based in different 
jurisdictions. 

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ANNEX III –  
GLOSSARY 

This glossary is not intended to constitute a conclusive Commission endorsed definition 
of  the  terms  contained  within  it.  The  definitions  have  been  provided  by  the  European 
Mortgage  Federation.  They  are  attached  to  this  Green  Paper  simply  by  way  of  an 
illustration of some technical terms used within it. 

Annual Percentage Rate (APR) 

A  standardised  method  of  calculating  the  cost  of  a  mortgage  stated  as  a  yearly  rate,  which 
includes items such as interest, mortgage insurance, and certain points of credit costs. 

Bond 

Traditionally, a written unconditional promise to pay a specific principal sum at a determined 
future  date  and  interest  at  a  fixed  or  determinable  rate  on  fixed  dates.  Increasingly,  the 
promise  to  pay  has  become  conditional  and  the  principal,  interest  and  payment  dates  have 
become contingent in real world instruments. 

Capital Markets 

The markets for corporate equity and intermediate-or long-term debt securities. 

Collateral 

The  property,  or  other  assets,  that  are  being  secured  against  a  loan  to  ensure  repayment  of 
debt. 

Covered Bond 

Covered  bonds  are  on  balance  sheet  debt  instruments  secured  by  a  cover  pool  of  mortgage 
loans  (property  as  collateral)  or  public-sector  debt  to  which  investors  have  a  preferential 
claim  in  the  event  of  the  issuer’s  default.  As  they  remain  on  the  issuer’s  balance  sheet,  the 
bonds  benefit  from  the  additional  security  of  the  issuing  institution’s  own  funds  and  from 
restrictive legal regulation of the issuing credit institutions. 

Equity 

Shareholder  equity  is  the  value  of  shares  held.  A  house  owner's  equity  is  the  value  of  the 
house minus any unpaid home-purchase loan. Negative equity occurs when the house is worth 
less than the debt on it. 

Equity Release 

Equity Release is a mechanism to turn the cash value of a house into a stream of income and 
capital payments. 

Equity Release Loans 

Secured (mortgage) loans taken out for consumption purposes. 

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Foreclosure 

The legal process by which a borrower in default under a mortgage is deprived of his or her 
interest  in  the  mortgaged  property.  This  usually  involves  a  forced  sale  of  the  property  at 
public auction with the proceeds of the sale being applied to the mortgage debt. 

Loan-to-value (LTV) Ratio 

The  ratio  of  the  mortgage  loan  amount  to  the  property’s  appraised  value  or  selling  price, 
whichever is less. For example, if the property’s appraised value or selling price is EUR 100 
000 and the mortgage amount is EUR 80 000, the house has an 80% LTV. 

Mortgage Backed Security 

Debt instruments collateralized by residential, commercial, or industrial real estate mortgages. 

Mortgage Bond 

A  corporate  or  other  entity's  debt  security  secured  by  a  mortgage  lien  against  certain  real 
property of the issuer. See definition for “covered bond”. 

Primary Mortgage Market 

A  mortgage  market  in  which  loans  are  originated  and  consisting  of  lenders  such  as 
commercial banks, savings-and loan associations and mutual savings banks. 

Secondary Mortgage Market 

A market where mortgage originators may sell them, freeing up funds for continued lending 
and distributes mortgage funds nationally from money-rich to money poor areas. 

Secured Loan 

A loan that is backed by collateral. 

Security 

Something  given,  deposited,  or  pledged  to  make  secure  the  fulfilment  of  an  obligation, 
usually the repayment of a debt. 

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