April 28, 2016 / 9:57 AM / 2 years ago

Romanian president signs mortgage walk-away bill into law

BUCHAREST, April 28 (Reuters) - Romania’s President signed into law on Thursday a bill that enables property buyers to walk away from mortgages, setting it on a potential collision course with commercial banks, the central bank and the European Commission.

The bill, which critics at home and abroad say poses serious risks to the economy, initially set no financial criteria for beneficiaries.

President Klaus Iohannis sent that version back to parliament, and lawmakers watered it down by capping the loan value at 250,000 euros ($284,000) and exempting a state subsidy programme for first-time buyers.

But the law as it now stands still applies retroactively, which contravenes EU rules.

Some observers had hoped Iohannis would challenge the amended version in the constitutional court, but he told reporters: “I believe the bill in its current form is alright.”

Romania’s central bank has said the bill would drive banks to raise the required down payment for mortgage loans to unsustainable levels and could trigger a ratings downgrade, raise funding costs for sovereign debt and lead to lower economic growth.

The International Monetary Fund, European Commission, European Central Bank and ratings agency Standard and Poor’s have echoed those warnings.

Backers of the law argued it would help impoverished borrowers and that no wholesale ditching of mortgages will occur. Romania holds local elections in June and a parliamentary poll in November or December.

Central bank data has shown there were 495,000 mortgages or other loans with real estate guarantees worth a total of 70.8 billion lei ($18.0 billion) at the end of 2015. ($1 = 3.9326 lei) ($1 = 0.8806 euros) (Reporting by Luiza Ilie; editing by John Stonestreet)

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