In: Root » Legal and finance » Loans and mortgages
Mortgage books keep records concerning real property, make records accessible and inform about real property's legal status. Beside the status-indicating function, the records affect rights under the substantive law and in a special way influence the acquisition and loss ofreal rights to property. Mortgage books are maintained under a so-called 'real' system - they are dedicated to individual properties and not their owners; a separate mortgage book is established for each property. The primary right entered in a mortgage book is the ownership title, but in some exceptional situations, mortgage books can be established to keep records ofso-called restricted cooperative real rights. In addition, mortgage books indicate a real property's location, area, or use, but this factual information does not provide grounds for any legal guarantees for buyers. Changes to a real property's legal status take place regardless ofwhether or not a record has been made, which makes the latter declaratory. However, in situations strictly defined in law, a record made in the mortgage book is a prerequisite for a purchase, change, or termination of a real right to property; the record is then ofconstitutive character. Cases in point are the establishment ofa separate ownership right to a flat, the establishment or transfer of the perpetual usufruct right, as well as transfer of a restricted real right, ifthe right has been entered in the mortgage book. Therefore, making a record in the mortgage book is not a prerequisite for the key real right, that is, ownership, to be transferred. In order to avoid gaps between the actual property status and that recorded in the mortgage book, real property owners are obligated by the law to report their rights for recording on pain of a fine. Mortgage loans have never been central to the state's housing policy. The first mortgage loan programmes in the beginning ofthe 1990s were conducted by foreign aid organizations and foreign banks, for example the World Bank, the USAID, the European Bank for Reconstruction and Development, and the US Enterprise Fund. A factor stimulating expansion of the mortgage loan business was the privatization process in the banking sector, which triggered fast growth of competition, progressing economic stabilization in the country, a decline in real and nominal interest rates together with growing consumer incomes and optimism. The mortgage loan market started to expand in an environment where efficient debt registration and collection systems did not exist and interest rates were high. Banks tended to protect themselves against risks by applying relatively high profit margins and low loan to value (LTV) ratios - between 1996 and 1999 bank margins reached 7-9% points, and the LTV ranged from 30% to 70%. Initially, two groups ofbanks emerged among the lenders, which pursued different strategies of involvement in the housing sector. One ofthem was the group ofbanks that started to specialize in financing the sector. The initiators were banks' boards that made strategic decisions. The banks set up separate units at the headquarters' level and specialist units in the branches. They offered a whole package of products addressing both the primary and secondary market. The other group ofbanks did not view financing ofthe housing sector as their priority. The initiative was usually taken by their credit departments, who offered products in order to attract new customers. The following factors helped establish the foundations for the mortgage loan market and product development: 1. Fast commercialization of the banking sector and strong competition among banks. When the Polish banking system was being reformed, the Central European model was accepted, calling for the non-postponement of reforms. As in Hungary, Lithuania, Estonia, Latvia, the Czech Republic, Slovakia and Bulgaria foreign investors were allowed to purchase interests in banks in open tenders. By becoming public, banks acquired capital necessary for their growth. A national bank model with postponed privatization, such as that found in Russia, Belarus or China, was rejected. Government ownership contributes to the politicization ofthe banks. 2. Stabilization on the macro scale. Macroeconomic indicators such GDP per capita or the rate ofunemployment, place Poland far behind most European countries, but the change trends are favourable - for the last 5 years, the annual average rate of GDP growth has been slightly higher in Poland than in EU-15 countries, inflation has settled and unemployment has started to drop. As a result, loan programmes have spread, despite the relatively adverse indicators. 3. Foreign institutions' participation in the establishment of the mortgage loan market. Already at the outset ofthe transition period, foreign institutions, mainly the World Bank and USAID, developed long-term forecasts supporting the expansion ofthe mortgage loan market. In addition, they backed up reforms by influencing successive governments. For instance, the World Bank counteracted further loan subsidizing and the USAID prevented the development ofa contractual loan system based on the German Bausparkassen system. In countries that continued to offer loan subsidies or introduced the contractual loan facility (e.g., Czech Republic and Slovakia), the mortgage market expansion was blocked. Foreign institutions enabled know-how flows in the following areas: • creation ofloan products that were practical in a high-inflation environment; this was especially important in the first transition years, when inflation was high - 70.3% in 1991, 35.3% in 1992 and 27.8 in 1995; • definition ofstandard documents and procedures applying to mortgage loans; • housing policy lessons. The know-how flows helped prevent the experimentation and thus risks involved in this approach. 4. Positive lessons learnt by the major lender - PKO BANK POLSKI. The bank traditionally specialized in financing the housing market. It came up with a product that could function in a high inflation environment and under macroeconomic instability. Although the product could not perform well in the difficult macroeconomic situation in the 1990s, it is believed that the PKO BP showed other commercial banks the possible paths towards developing loan products useful for the housing market (Łaszek, 2004a). 5. Rising real incomes and increasing optimism among consumers in large towns. This factor encouraged consumers to take decisions on acquiring a residential property using mortgage loans. The National Bank ofPoland's surveys revealed that the boosted lending campaign reduced households' demand for consumer goods and personal services only insignificantly (National Bank of Poland, 2006). 6. Inflow of foreign capital to the residential property market. This happened after Poland accessed the European Union. High activity is shown by both - individuals and institutional investors.
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