Greece's Parliament suspended, for one more year, most home repossessions. That will keep some 200,000 families off the streets, and their overdue property loans in a state of suspended animation.
The new legislation covers only primary residencies valued at up to €200,000 ($273,000) and households with an annual net income of under €35,000. The total worth of a household's real estate and liquid assets can't exceed €270,000, while bank deposits, shares and bonds can't be valued at more than €15,000. According to the Development Ministry, 90% of Greek homeowners are protected.
Greece's Big Four banks,National Bank of Greece,Piraeus bank, Alpha Bank and Eurobank who control more than 90% of the market between them—had been pushing for the extension, in a reversal of the way banks normally function. Under normal circumstances, lenders generally want the freedom to seize the collateral of borrowers who have defaulted.
It is a measure of how deeply troubled Greece's banking system remains that the industry has lobbied, both in Athens and Brussels, to preserve the moratorium, which began in 2008.
Some 24% of Greek mortgages, or €17.4 billion worth, are in default, according to Bank of Greece data. Greek real-estate prices are already down a third from their peak. A wave of repossessions, followed by widespread sales of the homes at discounted prices, could push prices down another 10% to 15%, analysts say.
That would force the banks to mark down the collateral on their remaining property loans that haven't gone sour, potentially tearing a multibillion-euro hole in their balance sheets.
"The banks certainly agree with extending the ban and their efforts are aimed at making sure it's not eliminated," Paris Matzavras, an analyst at Pantelakis Securities, said prior to the vote. "Extending it is the best case for the banks, rather than a wave of foreclosures that will depress the real-estate market further and weigh on their loan books."
The Greek government, the banks and consumer groups all favor a go-slow approach. That would entail cracking down on the 10% to 20% of borrowers who have the means to repay their loans but are choosing not to because of the moratorium, while leaving genuinely troubled borrowers untouched.
"We have no interest or desire, or the administrative capacity, to turn our banks into real-estate agencies," said a senior banker at one of Greece's Big Four lenders.
In other wobbling euro-zone countries, banks have also been reluctant to recognize the full losses on their loan portfolios. The practice of "extend and pretend," in which banks repeatedly restructure loan terms to avoid having to recognize costly losses, has been widespread in countries such as Spain. But regulators in those countries have pushed the banks to end what they regard as unrealistic forbearance policies.
That probably won't happen in Greece until 2015 at the earliest. Regulators, the banks, the government and the country's international creditors are all grappling with how to begin restructuring the country's mountain of bad debt.
Greece's central bank has proposed taking on the role of an extrajudicial mediator to arbitrate between borrowers and banks. That approach, similar to that taken by Ireland, would allow banks and borrowers to avoid Greece's judicial system, where courts can take up to seven years to resolve a case.
Meanwhile, the country's two largest banks, National Bank of Greece and Piraeus Bank, are setting up in-house divisions to manage and potentially sell some of their bad loans to investors. "No other country has had to deal with such a flood of bad loans," a senior Piraeus executive said.
