The Capital Markets Board (CMB) recently revised its draft law proposing amendments to various pieces of legislation. It aims not only to improve the legal issues hindering the growth of the mortgage market but also to address concerns raised by the Prime Minister and the Ministry of Industry and Commerce.
Scope of financing
By amending the definitions of mortgage financing and mortgage financing institutions, the CMB has limited the scope of financing to buildings with construction use licences (yapi kullanma izni), which may prove to be crucial in the fight against illicit settlements.
The revised draft law includes changes to provisions related to mortgage-backed securities (ipotek teminatli menkul k›ymetler), and further details the management principles of mortgage-backed securities. Highlights of the management principles include: appointment of a separate supervisor (a cover monitor), who will supervise the management of mortgaged-backed securities; and the creation of mortgage financing funds (konut finansman fonu), which will be able to directly issue mortgage-backed securities (rather than fund units) that could be traded, and will not be subject to any third-party claims (that is, being subject to a pledge or an attachment), even in the case of public debts, a preliminary injunction or a bankrupt estate.
Real estate valuation
Valuation of real estate is particularly important to financing institutions, because the initial value assessment of the real estate in question plays a part not only in extension of the credit itself but also during the foreclosure process and the validity of public auctions (that is, the minimum amount the real estate should be sold for), which will be based on this valuation. Under the revised draft law, valuation of real estate must be conducted by the members of the Turkish Real Estate Valuation Experts Association (Türkiye Gayrimenkul Degerleme Uzmanlari Meslek Birligi) to facilitate the lengthy and sometimes cumbersome mortgage foreclosure procedures and to pave the way for a healthy value assessment of real estate. The Association will also be responsible for collecting relevant data and preparing statistics, and publishing this information nationwide.
Tax benefits that were more generously provided to individuals, as well as to the mortgage banking institutions,under the old draft law have been restricted, although the exemptions from corporate tax and stamp tax have been kept.
The payback guarantee obligation of the Undersecretary of Treasury (in the maximum amount of NTL400 million ($299 million)) has been further detailed under the new draft law. It is now proposed that the prerequisites to obtaining a Treasury guarantee (for example, requirements to be satisfied by the mortgage banking institutions, qualities that the assets backing the securities must have, types of securities, and the amount and term of the guarantee) be regulated separately. (It was initially proposed that the Council of Ministers be authorized to determine where and when to grant guarantees.) The CMB aims to increase the transparency in obtaining a Treasury guarantee to make mortgage banking more attractive for financing institutions.
The draft law amendments would affect the Execution and Bankruptcy Law, Capital Markets Law, Consumer Protection Law, Corporate Tax Law, Income Tax Law, Expenditure Taxes Law, Fees Law, Stamp Tax Law, Banks Act, Financial Leasing Law and the Law on Regulation of Public Financing and Debt Management.
This briefing is the first in a two-part series. Part II will appear in the March 2006 edition of IFLR.