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Hungary

Mortgage banks were an important part of the Hungarian banking system until World War II. After a long break during the socialist era, mortgage banks have now been reintroduced in Hungary through Law No. XXX of 1997, which took effect on June 7 1997.

Mortgage banks are a specific type of credit institution. For this reason, the Mortgage Bank Act was passed to supplement the provisions of the Banking Act (Law No. CXII of 1996).

A mortgage bank can be organized as a stock corporation, or it can be a branch of a foreign bank authorized to issue mortgage bonds. The requested minimum capital is Dkr3 billion (US$444 million). Mortgage banks specialize in long-term loans (ie loans with a term of at least five years) secured by a registered mortgage encumbering real estate located within the country. In addition to the mortgage, an entry must also be made in the competent land register in the bank's favour stipulating that the real estate may not be sold or further encumbered. The restraint of alienation and encumbering of the real estate must be stipulated in the mortgage agreement. The loan agreement must be notarized. The total sum of all mortgage loans encumbering the real properties may not exceed 70% of its so-called loan collateral value.

The rights of mortgage banks to engage in business activities other than granting mortgage loans are restricted.

The funds needed to finance the mortgage loans are raised by issuing mortgage bonds. These are negotiable instruments issued to the bearer or to a named individual. Mortgage banks are required to maintain a minimum cover equivalent to the outstanding total face value of the mortgage bonds issued by them and the interest accruing on them. The law further stipulates that an independent auditor, a so-called examiner of assets, whose appointment is subject to approval by the Money and Capital Market Supervisory Authority, must check at regular intervals whether these minimum cover requirements are being met. Other matters relating to the activities of mortgage banks are also regulated in the Mortgage Bank Act, for example that the land registries are required to process applications for the registration of mortgages filed by mortgage banks in summary proceedings.

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