Opinion of the European Economic and Social Committee on the  Green Paper: Mortgage Credit in the EU (COM(2005) 327 final)
Date: 2005-12-15
Institutions: European Economic and Social Committee
Subjects: ESC opinion, competitiveness, consumer protection, contract, financial institution, market, mortgage, real estate credit

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Official Journal of the European Union

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R&D measures. In the case of biomass, non-supported uses of
the products from limited land areas have to be taken into
account. Rise in generic (mainly fossil) energy prices gives
reasons to re-evaluate the needs and levels of support. Particu-
larly important are the effects of the EU emissions trading
scheme, which as such has already caused rising electricity
prices. To achieve the identical aim, double or overlapping
measures have to avoided.

5.10 While support schemes are required for new technolo-
gies to ripen and enter the market, they cannot be indefinitely
maintained.
Influences on employment have to be carefully
considered in order not to create jobs that will be lost when
the support is ended.

5.11
The EU RES-E Directive leaves the organisation of such
support to Member States. This has led to an incoherent and in
some cases market-distorting patchwork of support mechan-
isms. The result is a loss of synergies and in parts of the EU a

lack of market incentives and drivers, while elsewhere arise
unnecessarily high costs. Most of this could be avoided through
a common European approach. The EESC addressed this
problem already in its opinion on the RES-E Directive (see foot-
note 1). While an ideal common European solution does not
yet seem to be at hand, the choice of national support schemes
seems to slide towards more use of green certificates. As experi-
ences accrue the issue has to be further studied and developed.

5.12
After the initial ‘pioneering’ phase there is a definitive
need to reassess EU policies for renewable energy sources. The
changing situation in the global energy markets with high and
volatile prices, effects of related EU policies and measures, in
particular emissions trading, and the Lisbon strategy goals have
to be taken carefully into account. Focus has to be set on
ensuring a steady long term development by concentrating on
R&D and technology development.

Brussels, 15 December 2005.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

Opinion of the European Economic and Social Committee on the ‘Green Paper: Mortgage Credit in
the EU’

(COM(2005) 327 final)

(2006/C 65/21)

On 19 July 2005 the European Commission decided to consult the European Economic and Social
Committee, under Article 262 of the Treaty establishing the European Community, on the Green Paper:
Mortgage Credit in the EU

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 11 November 2005. The rapporteur was Mr
Burani.

At its 422nd plenary session (meeting of 15 December 2005), the European Economic and Social
Committee adopted the following opinion by 97 votes in favour with 1 abstention.

1. Summary of the position adopted

that mortgage credit markets in the EU differ to a considerable
extent and that each has characteristics of its own.

The Green Paper on mortgage credit

1.1
for residential
properties in the EU forms part of the policy of integrating
financial
is
currently being considered by the sectors concerned.

services at European level. The Green Paper

1.2
The Committee, while agreeing with the aims proposed
by the Commission, takes the view that full integration will be
difficult to achieve in the short term. It must be borne in mind

1.3
In the Green Paper the Commission raises a number of
questions, which the Committee endeavours to answer. The
first series of questions concerns consumer protection: on this
point the EESC asks that the codes of conduct be drawn up by
the associations of European financial institutions in consulta-
tion with consumer associations, checked by the national

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ombudsmen and registered with courts or chambers of
commerce.
information
It also proposes the provision of
(including pre-contractual
information) with clear and trans-
parent content, which would apply, perhaps even more strictly,
to credit intermediaries. As regards early repayment, the EESC
takes the view that the calculation should rely on formulas of
financial mathematics which also take account of the actual
burden borne by the provider. On the question of whether
there should be a European standard covering both the method
of calculation and the cost elements, the EESC maintains that a
lowest common denominator could be made up of the cost of
drawing up the file, the cost of setting up the mortgage, clearly
insurance.
identifiable administrative costs and the cost of
However, it points out that the proposal to standardise mort-
gage contracts must not impede the supply of new products, as
that would amount to a brake on innovation. The EESC is in
favour of setting up mediation structures, but not arbitration
structures, since the latter do not come under the scope of
consumer protection.

A second series of questions concerns legal issues. The
1.4
EESC confines itself to a few comments on these. First and fore-
most,
it points out that the rule on the jurisdiction of the
consumer's country of residence limits supply considerably;
moreover,
the need to establish clearly the
language to be used in the contract, contacts and correspond-
ence.

it points out

A third series of questions concerns mortgage collateral.
1.5
The EESC takes the view that the Commission should continue
its work of promoting cooperation between property owners
and controllers of land registers (also drawing up an annual
report on the results achieved).
terms the EESC
thinks that the Euromortgage idea deserves to be encouraged.

In general

1.6
The last question concerns the financing of mortgage
credit. On this point the EESC agrees with the idea of a pan-
European financing system as proposed by the Commission,
but thinks that such an objective can be achieved only in the
long term and intends to clarify its position on this at a later
date.

2. Background

2.1
As part of its policy for the integration of financial
services, the Commission is tackling the subject of residential
mortgage credit in the EU, proposing to move on to practical
regulatory measures should the current studies and contacts
show that such measures would result in an integrated market
which would be ‘more efficient and competitive for the benefit
of all’. The present Green Paper is based on a study (‘The inte-
gration of the EU mortgage credit markets’) drawn up for the
Commission by the ‘Forum Group on Mortgage Credit’ (FGMC),
even if it does not necessarily always follow the same line.

2.2
the
The responses to the Green Paper from the all
sectors concerned are expected by the end of November 2005

and will be followed by a hearing in December. The Commis-
sion will then assess what measures,
if any, on its part are
needed.

3. The Green Paper (GP): The Committee's comments

3.1 Assessing the case for Commission action (point I of the GP)

3.1.1
The Commission points out that the mortgage credit
market is one of the most complex financial markets, both
because of the large number of players involved and because of
the variety of technical forms it can take. There is also a direct
relationship between the mortgage credit market and the macro-
economy, in the sense that any variation in economic cycles and
rates of interest influences the volume and the trend of mort-
gage credit. In practical terms, the growth in the volume of
credit
in the EU has been influenced by macro-economic
factors (reduction of interest rates and rapid growth in property
prices in many countries) and by structural factors (growing
liberalisation and integration of the financial markets).

3.1.2
Despite these common trends, the EU mortgage
credit markets remain profoundly different: each has its
own characteristics in terms of products, the profile of lenders,
the distribution structures, the timescale of loans, taxation of
property and refinancing mechanisms. These differences are the
result of the differing attitudes of Member States with regard to
regulation, but also of factors of a historical, economic and
social nature. These factors sometimes have features which are
not easy to reduce to a common denominator. The picture is
further
in municipal
complicated by state
building, tax systems, prudential rules,
levels of competition
insolvency, which vary from one country to
and risks of
another.

interventions

3.1.3
Given this situation it is not surprising that markets
are not very integrated, but it is necessary to take account of
the fact
that cross-frontier sales of property constitute
barely 1 % of the overall market for residential building. The
Commission takes the view that, hypothetically, the benefits of
integration would be a reduction in the cost of mortgage
credit, a higher level of consumer protection guaranteed by law
and an increase in the number of potential users of such credit,
thanks to the inclusion of those whose credit profile is low or
incomplete.

3.1.4
The Committee agrees with the aims proposed by the
Commission; however, it considers that the differences between
the various markets listed by the Commission (and other differ-
ences which will be mentioned in this document) as so many
and such as to suggest that a total integration will be very difficult
to achieve in the short term. For the moment it will be necessary
to take action in the sectors where harmonisation does not
present excessive difficulties, questioning each time whether the
game is worth the candle, and without having the ambition of
dictating rules — or changing them — just for the satisfaction
of following programmatic or ideological imperatives.

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3.1.5
One point in particular should be borne in mind. As
mentioned above, cross-frontier purchases of property amount
to only 1 % of the market and concern almost exclusively
holiday homes and property in frontier areas; it does not there-
fore seem likely that this small market share was the main aim
of
strategic objective
rather
mentioned in point 3.1.3 above. In other words, the Commis-
sion envisages an integration such as to enable any citizen of the
Union to acquire a property in his own country or another, using the
services of a financial intermediary in his own country, the country
where the property is situated or a third country.

the Commission, but

the

3.2 Consumer protection (point II of the GP)

3.2.1
On information the Commission raises four ques-
tions. On the first of these, concerning codes of conduct (1),
the EESC points out that they are by definition voluntary; the
problem arises with the content, which should be drawn up by
the associations of European financial institutions in consulta-
tion with consumer associations, so that it either includes sanc-
tions mechanisms or is checked by the national ombudsmen
and registered with courts or chambers of commerce. Such
codes should be signed by all the associates in the trade cate-
gory, and the contracts and information documents should
expressly mention the fact that the provider of the service has signed
the code of conduct.

The second question concerns the content of

3.2.2
the
information, which is an essential element: all the aspects of
the contract — legal, technical and accounting — must be
clear to the consumer, but it is not easy to find a satisfactory
compromise between transparency, precision and ease of
comprehension. The need to explain the technical terms makes
the texts longer and does not necessarily contribute to their
clarity. The survey of failures to meet contractual obligations and the
consequences of such failures should also form part of the informa-
tion:
the information on the most
frequent aspects should be included in the codes of conduct in
the form of a standardised text.

the EESC suggests that

3.2.3
Third question: the points made above also apply, at
least in part, to pre-contractual information; this could make
possible comparisons with other offers, and thus contribute to
an informed choice at national level, but at this stage is unlikely
to assist the comparison with credits offered by other countries.
There is also a European initiative on the subject promoted by
the trade federations, which have adopted the ‘European Infor-
mation Sheet’, drawn up with the help of the consumer associa-
tions. Although this initiative has been supported by most of
the financial institutions, it would seem, according to some, to
be put into practice with little conviction in a number of coun-
tries. The Commission is investigating the matter and could if
necessary adopt coercive measures which could involve turning
the agreement into a regulation.

3.2.4
Fourth question: there is no doubt that the provision
on information must be applied and, indeed, even more rigor-
ously, to credit intermediaries (brokers and others).

(1) OJ C 221 of 8 September 2005.

3.2.5 On advice for borrowers the Commission raises two
questions. The first has long been debated: should there be an
obligation for the provider to give advice on the best form of
loan, timescale, price etc.? The Commission points out that
advice in writing — as requested by the consumers — exposes
the provider to legal risks and compensation claims. It is unli-
kely that a provider would be prepared to take on this burden,
above all in the view of the fact that it would be difficult for
him to show a posteriori that he had not been in possession of
all the necessary factors for evaluation or that he had taken
account of possible future eventualities. Making advice compul-
sory would greatly reduce the credit on offer, and it is therefore
undesirable; however, it cannot be excluded that under pressure
of competition certain providers or intermediaries may decide
to offer this service, either free of charge or in return for
payment.

3.2.6 With regard to the second question, on the responsi-
bility for any advice or information provided in writing,
whether voluntarily or compulsorily, it is necessary to distin-
guish between advice and information; as regards advice, the
reply is in the second part of the preceding point. On the other
hand, any information which is incorrect or concealed —
whether deliberately or by negligence — involves the responsi-
bility of a provider. But the scope of the information must be
clearly understood:
it cannot be confined to setting out the
technical aspects, but must — or should — ensure that the
consumer has at his disposal every other element useful for
making an independent,
reasoned final choice. Codes of
conduct, or if necessary the civil code, should provide a guide
to settling any disputes.

As regards early repayment the Commission raises
3.2.7
three questions. The first revives a long-debated question:
should early repayment be a legal right of the consumer or a
choice for both parties? In general early repayment is requested
by the consumer in the event of rate variations unfavourable to
him, whether for fixed-rate loans or for variable-rate loans,
such as the rate changes made in the past in some countries
following high inflation. At all events, early repayment is always
requested by the consumer and very rarely refused by the
is provided for in the
provider,
contract. The problem is not so much whether early repayment
is possible or not, rather the problem posed by the next ques-
tion.

regardless of whether

it

How should the fees for early repayment be calcu-
3.2.8
lated? Ways of
financing mortgage credit vary from one
country to another, but as a general rule a provider obtains
funds by issuing bonds guaranteed by the mortgages on the
property he sells on the primary or secondary market. The
techniques and products, which include an entirely new one,
equity release, vary considerably depending on the timescale of
the loans, whether rates are fixed or variable, the payments, the
and the market procedures. Early repayment
techniques

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involves, alongside an advantage for the consumer, a burden
for the provider who must — in very approximate and
simplistic terms — reuse the sum received in anticipation in
order to buy back the bonds which have been deprived of their
guarantee. Financial mathematics provides the formulas for
calculating the burden to the provider, a burden which varies
according to the period remaining, the trend of rates and the
situation of the market. The EESC takes the view that one
response to the question would be to apply a principle of equity:
alongside the benefit for the consumer it is necessary to calculate the
effective burden borne by the provider as a result of early repayment.

3.2.13
On the third question, what kinds of cost elements
a European standard should include, the EESC takes the view
that a lowest common denominator could be made up of the
cost of drawing up the file, the cost of setting up the mortgage, clearly
insurance. As an
identifiable administrative costs and the cost of
initial approximation, this should be enough for the consumer
to make a comparison among the various offers; every
provider, however, should clearly warn consumers against
making too easy a choice based only on an APR calculated in
this way.

3.2.9
Rules for calculation should be included in the code of
conduct or, better still, in each individual contract. The only
standardised rules possible in this area are those of financial
mathematics: it is not particularly difficult to calculate advan-
tages and disadvantages on the basis of the period which has
elapsed and the remaining period, the rates applied and the
current rates. The result, purely a matter of financial mathe-
the
matics, should be supplemented by the calculation of
profits or disadvantages for the financial institution deriving, in
the period in question, from the reinvestment of the liquid
funds acquired in advance. At all events, the payment of penal-
ties should be excluded.

3.2.10
The third question, how the consumer should be
informed about the possibility of early repayment, has
already received a reply in the last part of the preceding point:
there is no reason why the possibility of early repayment
should not be included either in prior information or in
ongoing information and, better still, also in the contract.

3.2.11
Four questions concern the annual percentage rate
(APR). The first refers to a question already fully discussed in
the preliminary stages leading to the adoption of the relevant
directive, namely whether the purpose of an APR is to
inform or allow comparison or both. The fact that after a
number of years the Commission is raising the question again
that doubts on the matter persist. The
seems to suggest
formula adopted for calculating the APR corresponds to a
precise mathematical and economic logic, and was intended by the
legislator to also meet criteria of information, transparency and
comparability. In practice, however, a consumer who is not an
expert in financial mathematics can do no more than take note
of the figure communicated to him: thus the information and
transparency requirements are respected only as a formality. As
regards comparisons with other offers, they are possible on condition
that the various proposers offer exactly the same product and have
followed the same calculation methods and that the figures used for
the calculations are specified in detail.

3.2.12
The second question, whether there should be an
EU standard covering both the calculation method and the
cost elements, should undoubtedly receive a positive reply in
principle. In practice, however, it will not be possible to define
such a standard until there are harmonised systems, exactly
comparable products and standardised administrative proce-
dures: an objective which is not easy to achieve in the short
term.

The last question, whether it

3.2.14
is desirable for the
provider to give information separately 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, lends itself to two distinct replies. On the first
part of the question the EESC would reply in the affirmative,
partly because, among other things, the presentation of the
costs not included in the APR would make it possible to lift the
reservation on comparison of conditions mentioned in the
preceding point. On the presentation of the effects of the APR
in ‘concrete’ terms in the sense indicated by the Commission,
the EESC takes the view that it is undoubtedly possible and that
there are computer programmes capable of meeting this
requirement — if it is indeed a requirement. The doubt arises
for the reasons set out in point 3.2.11: the consumer runs the
risk of being further confused if he is confronted simulta-
neously with a financial reimbursement plan — the one which
is of real use to him — and another plan which, although
correct in terms of financial mathematics, diverges from the
first.

3.2.15
Four questions are raised by the Commission on
usury rules and interest rate variation. As regards the first
of these, on the implications for integration of the markets of
it is
rules against usury (existing in certain Member States),
necessary to make a preliminary statement: in a Member State
where the law lays down binding limits on interest rates,
it
seems that such limits have been laid down with a view to
consumer credit, current account overdrafts and personnel
credit, but not — in the EESC's view — mortgage credit. At all
events, the problem is a delicate one: a Member State which
had laid down limits could wish to take action against a
provider in another country who has contravened a rule to
which the provider is not subject, but which concerns a
contract valid on his territory. The national rules on usury in any
case constitute an obstacle to integration of the markets.

3.2.16
The second question concerns the possibility of
examining usury rates in a broader context which is not specifi-
cally connected with mortgage credit. The EESC's reply to this
question is affirmative;
if a further investigation showed it to be
necessary, Community legislation could usefully replace the
various existing national
the EESC warns
against simplistic solutions: a uniform usury rate would run the
risk of not taking account of the individual characteristics of
the markets. In particular, the fixing of a single rate would be
pointless and should be left to the individual Member States,
once the problem raised in the last part of point 3.2.15 has
been solved.

rules. However,

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the

The

3.2.17
restrictions
third question is whether
imposed by certain Member States on the imposition of
compound interest rates constitute an obstacle to market inte-
gration. The EESC's reply can only be the same as that given on
usury rates in the preceding point. Moreover, the Commission
should check the level of simple interest rates in countries
which do not apply compound interest: should they be higher
on average than those of other countries for comparable transac-
tions, the suspicion could arise that the loss of compound
interest has been compensated for by higher simple interest,
following a market logic which is not transparent and has no
advantages for the consumer.

The fourth question concerns the ‘equity release’
3.2.18
product and asks what impact the restrictions on the imposi-
tion of compound interest can have on its development. As
this is a new product, for which there is insufficient experience,
the EESC refrains from taking up a position and leaves the
reply to technicians with specific experience of the market.

3.2.19
As regards the standardisation of credit contract
terms, the Commission points out that the subject is part of
the broader framework of the initiative on European contract
law; standardisation could be achieved either by classical
harmonisation or by way of a so-called ‘26th regime’, a legal
instrument parallel to national legislation and usable, with the
agreement of the parties, as an alternative to that legislation.
The EESC takes the view that the first alternative is at present
premature, and that the second could be a valid option only
after it has been ascertained, through a thorough study of the
laws and contracts of all 25 countries, that the ‘parallel’ instru-
ment does not contravene the rules and laws of any of them.
it is necessary that standardisation rules
At all events,
should not hinder the supply of new products and thus
become a brake on innovation. But, while awaiting a solu-
tion to the various problems, it should not be difficult to reach
an agreement between financial
institutions, consumers and
Commission on a basic draft contract which would include at
least the clauses in most current use and common to all types
of contract.

3.2.20
The last two questions concern the legal structures
for the protection of consumers' rights. In every country
there are structures for mediation or arbitration other than the
legal channels, which are often too slow and costly to the
consumer: the Commission calls in the first place for opinions
on the possibility of imposing on Member States an obliga-
tion to set up specific mediation or arbitration structures
for mortgage credit. The EESC is favourable in principle to
mediation structures but not to arbitration structures, since the
latter do not come under the scope of consumer protection.
Moreover, it points out that mortgage credit law is by its
very nature linked to a range of other legal or administra-
tive rules: the code of civil procedure, succession, bankruptcy,
ownership,
land registry rules and tax rules. One alternative
structure to that of the courts, capable of taking decisions likely

to stand up to casual contestation, could be found in the need
to develop structures and resources similar to those of the
courts themselves. But given that certain Member States seem
to be open to this possibility, they could report on this after a
suitable period of experimentation, so as to provide useful
lessons for possible general adoption.

3.2.21
The Commission calls for suggestions on the possibi-
lity of strengthening the credibility of existing alternative
redress systems, especially in the field of mortgage credit. The
EESC is aware that the existing systems give reasonably good
results, which could be improved in many cases by speeding
up the decision-making procedures. With specific reference to
mortgage credit, and in the light of the preceding point,
it
should be pointed out that the mediation or arbitration struc-
tures should be credible for both parties, and not
for the
consumer: the high average value of every dispute requires deci-
sions to be fair and unassailable even in legal terms to avoid a
later appeal to the courts.

just

3.3 Legal issues (point III of the GP)

3.3.1
The Commission deems it appropriate to consider the
legal aspects of mortgage credit in the light of the current
review of the 1980 Rome Convention, which will be trans-
formed into an EU regulation. The following three approaches
to applicable law are currently under review:

— to establish specific arrangements for determining the law
applicable to mortgage credit contracts: the law applicable
to such credits could be aligned to the law of the country
in which the property is situated;

— to continue ensuring compliance with the general principles
of the Rome Convention, thus granting the parties concerned
the freedom to choose the applicable law, provided that the
mandatory rules of the consumer's country of residence are
applied;

— to ensure that the mandatory protection rules enforced in the
consumer's country of residence are not applicable to mortgage
contracts, provided that there is a high level of consumer
protection across the European Union;

— As

far as

the collateral

(the mortgaged property)

is
concerned, the Commission sees no reason to depart from
the well-established principle — which the EESC fully
the
supports — which stipulates that
country in which the property is situated that applies.

is the law of

it

3.3.1.1
The three approaches outlined above warrant further
discussion in a separate opinion: the subject is complex and
each approach presents advantages and disadvantages. The
EESC will confine itself here to some basic observations:

a) none of the three approaches can be applied without disad-
vantage to a hypothetical consumer residing in country A, a
lender
residing in country B and property situated in
country C (which could also be situated outside the EU);

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b) the offer is severely restricted by the law of the consumer's
country of residence — or, to put it better, the possibility
for the consumer to use the services provided by a lender
residing in another country: lenders are usually reluctant to
draw up a contract that is subject to laws that are unknown
to them, since they realise that if any controversy arises
they would need to seek legal assistance abroad and use a
language that is not their own;

adequate remedial measures are taken. To venture beyond this
point, by threatening ‘more robust’ measures, seems unrealistic:
the chances that a measure of this kind would meet with the
consensus of the Member States are very slim. Moreover, the
premise of invalidating entire judicial systems only to promote
cross-border mortgage credit (which presently constitutes only
1.1 % of the EU total and for which — in the best hypothesis
— future estimates are not more than 5 %) seems to lack a
natural sense of proportion.

c) the language that is to be used in the contract, for the
purposes of contact and correspondence, must be clearly
established: if the choice falls on the consumer's language,
this would be a further deterrent for the lender, in addition
to the one outlined in point b).

The Commission has addressed several

3.3.2
issues on
client credit-worthiness, which have previously been covered
in a similar area (consumer credit), and considers that the most
pressing issue is to ensure cross-border access to databases
on a non-discriminatory basis. In the EESC's opinion, the
right to access is necessary, but appropriate rules are needed to
establish who can enjoy the right,
conditions and
consumer guarantees. Furthermore, the EESC would like to raise
an issue that has not been previously addressed: the property
buyer, whether the property being bought is a main residence
or a holiday home, is often not included in any database owing
to the fact that he/she had not taken out credit before; the
search for accurate information will, in this case, be proble-
matic, time-consuming and costly.

the relevant

3.3.3
The Commission is therefore addressing the issue of
property valuation by considering the merits of a single EU
standard or whether steps to ensure mutual recognition of
national valuation standards are required. The EESC believes
that the first alternative should be rejected a priori without
entering into further discussions on the topic. As to the second,
the experts point out that national or even just regional stan-
dards are an utopia of which one should beware; too many
variables help to create a property market whose characteristics
are primarily local. Any attempt at standardisation could prove
to be distorting. The EESC supports this view.

a

gradual

suggests

Another important

this would hinder cross-border lending activity.

3.3.4
issue is then discussed — the
forced sale of mortgaged property. The GP notes that this area
is characterised by a large number of procedures, timeframes and
It
costs and that
therefore
approach to encourage
improvements in forced sales procedures: to first gather
information on the cost and duration of these procedures so
that a regularly updated scoreboard could be developed. Should
this prove ineffective, the GP suggests considering adopting
‘more robust’ measures. The EESC considers that the gath-
ering of information and the development of a scoreboard
would constitute a kind of moral suasion of those Member
States which have relatively ineffective or cheap procedures in
place; this could give lenders and consumer associations a good
reason to exert pressure on their national authorities until

Another — still intractable — obstacle to full market
3.3.5
integration is the taxation issue; the Commission, showing a
sense of realism, has not developed any plans to harmonise this
area. However, there are some other obstacles which can be
removed. Several Member States have refused to make the
mortgage interest payments made to foreign lenders tax
deductible; in other cases, the interest received by domestic
lenders is taxed net of the interest paid to finance loans,
whereas foreign lenders are taxed on the gross amount of
interest paid by national debtors. Both cases are in breach of
the Treaties or Community legislation: the first is in breach of
Articles 49 and 56 of the Treaty, as established in two judg-
ments delivered by the Court of Justice; the Commission —
with the full support of the EESC — intends to take direct action
against the second.

3.4 Mortgage collateral (point IV of the GP)

the content and management of

3.4.1
Land registry is a key element in determining prop-
erty ownership rights; furthermore, there is concern that regis-
ters do not always reflect the property rights of third parties.
For cross-border mortgage credit activity to work properly
(including financing),
land
registry must be clearly understood. The Commission has
financed a pilot project (EULIS) with the aim of enhancing
cooperation between property owners and controllers of
land registers; this project could, among other things, be
very useful for many of the new Member States. It now
wonders whether it should continue to play an active role in
this initiative and whether, given the use of such registers
by lenders and investors, the latter might be required to
contribute to and invest in such initiatives. In the EESC's
opinion, the Commission should continue to play its valuable
role in promoting this type of cooperation and should, further-
more, produce an annual report on the results obtained. It is
joint projects should be
however not of
financed by a single category of user (which is not even the
main one) owing to the fact that i) it is in the interest of the state
and the community to hold land registers and that ii) currently, both
registration and access are subject to payment.

the opinion that

3.4.2
The idea of a Euromortgage is not new but it has not
yet been tested on the market, not even as a pilot project.
Essentially,
the objective of Euromortgage would be to
weaken the link between the mortgage credit and mort-
gage collateral: the latter would form part of an EU-wide

17.3.2006

EN

Official Journal of the European Union

C 65/119

pool of guarantees on securities issued on the market. The
concept seems attractive and would reflect the idea of an inte-
grated EU-wide property market; the EESC believes that the
project deserves to be encouraged. If carried out, it would be a
first step towards an integration of the markets, brought about
by the market itself instead of by regulatory pressure.

3.5 Funding of mortgage credit (point V of the GP)

3.5.1
Individual countries have different funding systems,
which, however are essentially based on bonds where the mort-
gaged property provides the investor's security. In the sectors
concerned, the idea that further integration of markets would
be enhanced by the emergence of such a pan-European security
market is gaining ground. While the Commission shares this
view, it observes that the issue does need further exploration.
In the Commission's view, the advantage of a pan-European
funding,
financing system would be to increase sources of
enhance market liquidity and more generally allow for the
diversification of risk. Furthermore, it would promote the inte-
gration of secondary markets, which is, in any case, dependent
on the integration of primary markets. The EESC supports this
view but shares the opinion of those that consider this a long-
term objective.

3.5.2
The transferability of mortgage loans is a key
consideration. The Commission plans to set up an ad hoc
stakeholders working group which will be responsible for asses-
sing the need for, and nature of, any action on funding aspects,
and expresses interest
in assessing whether it would be
possible to promote a pan-European market in mortgage
funding via market led initiatives (for example by estab-
lishing documentation and definition standards for use in

Brussels, 15 December 2005

cross-border funding activities). The EESC believes that it is up
to market operators to react, since they are the only ones with
the necessary expertise to make an informed assessment.

The Commission's final comment raises a crucial issue
3.5.3
it asks whether mortgage lending
for the future of markets:
should necessarily be restricted to credit
institutions or
whether, and under what conditions, it could be provided by
institutions which do not take deposits or any other repayable
sums and which therefore do not fall within the EU's definition
of credit
institutions and are consequently excluded from
prudential regulation. The EESC notes initially that in order to
ensure stable and strong markets, the presence of a controlling
authority to monitor property markets is insufficient; all finan-
cial institutions involved, irrespective of their type, need to be
effectively monitored. The consumer protection factor has trig-
gered the creation of prudential rules, and every new proposal
must be discussed in this context.

3.5.4
Institutions of the type mentioned above should be
fully self-financed: this is difficult to achieve and would more-
over require constant monitoring to ensure that
the initial
conditions remain valid over time. As regards other cases,
recourse to external funding — whatever the arrangement — is
unavoidable. The EESC concludes that institutions of the type
described by the Commission must be subject to pruden-
tial controls, regardless of whether these are imposed by
banks or other agencies; secondly, a level playing field must be
maintained and the rules applicable to credit institutions —
particularly those on solvency and liquidity — must also
apply to any of these other institutions. If the guiding prin-
ciples of prudential supervision still hold true today, there should
be no room for exceptions.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND