The Credit Directive real Estate redefines the operational practices of the banks and their approc…

On the 13th of June last, Arca Council met at Bristol a hundred of professionals of the banking industry, on the occasion of its conference on the issues of the Directive to real Estate Credit.

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Samy Benarroch, Chair of Arca Council, Aziz Elhaouel, Director-Risk at the Crédit Agricole Sud Rhône Alpes, Jean-Marc Moulin, Professor of private law at the University of Perpignan, and Jerome Vignolles, President of the National association of real Estate Experts, have delivered their analysis as to the new provisions imposed by the Directive to banking institutions.

Entry into force on 1 July 2016 after a transposition in French law, the Directive real Estate loan (2014/17/EU) participates in the constitution of a new legal framework, marking more rigorously the granting of credit to individuals. The objective of this text is twofold : to ensure a high level of protection of the consumers but also empower lenders and intermediaries in the distribution of credit. “These two complementary objectives should promote, in fine, the financialization of the european real estate market and the securitization of real estate receivables, in the best conditions of reliability and transparency,” says Samy Benarroch.

In practical terms, the main requirements of the Directive concern the pre-contractual phase contractual, binding on the banking institution to its customer, in the process of production credit. The Directive encourages in particular the lender to standardize the information provided to its customer, the borrower, through two levers : the Information Sheet is a Standardised European (FISE), which provides the consumer with essential information on the credit agreement, that it subscribes to, and the unification of calculation of the APR (annual percentage rate), which now includes all of the costs incurred by the borrower (interest, fees, commissions, etc.).

The Directive also imposes on lenders to ensure in full the whole of their duties of guidance with the client : the duty of explanation (adequate explanations about credit agreements and any ancillary services, such as insurance), duty to warn (this requirement is aimed at attracting the consumer’s attention on a potentially negative to the contract), and finally, duty of board.

To rigorously assess the credit worthiness of the borrower and the value of the property

During the contractual phase, the assessment of the creditworthiness of the borrower and property valuation represent the pillars of the Directive. Thus, before the conclusion of any credit agreement, the lender must conduct a rigorous evaluation of the credit worthiness of the consumer. “The text recommends to take into account the relevant factors for assessing the borrowing capacity of the client. This involves collection of information necessary, sufficient and proportionate for the income and expenditure of the consumer, either from internal sources (the consumer) but also external (such as a credit intermediary, or the national File of the incidents of repayment of credits to individuals) ” explains Jean-Marc Moulin. The solvency valuation then determines the agreement or the refusal of the loan.

The systematic evaluation of the property, when it is a proposal for a mortgage credit is strongly encouraged by the Directive. The challenge is to determine the value of the property from an impartial and objective manner in order to ensure its reliability, which is necessary to the generation of the process of credit or the commitment of a mortgage, in the event of a later failure of the borrower. “The evaluation should be conducted by a qualified expert, in accordance with recognized standards, integration of the factors, legal, economic, technical, and tax “, explains Jean-Marc Moulin. “The expert must observe the methodologies and procedures prescribed by the Charter of the real Estate Expertise,” adds Samy Benarroch.

If the Directive encourages the use of a third party professional for the assessment, it is nevertheless possible for the lender to appraise itself of the property. “In this case, the evaluation function must be independent of the decision-making in the area of credit, both functional and hierarchical, while the lender must adopt measures to ensure the absence of conflicts of interest and influence on the evaluator” hue, Jean-Marc Moulin.

A phase of adaptation of banking institutions, a source of added value

This regulatory development has already had a significant impact on the operational practices of the institutions and on their approach to the credit market. “Inevitably, the latter are increasingly using the services of external partners, open architecture, capable of delivering a real estate appraisal independent and certified in the framework of mortgage lending,” noted the Chairman of the Arca Board. At Crédit Agricole Sud Rhône Alpes, a rigorous process of selection of external service providers has also been put in place. “At the end of a call for tenders to which fifteen companies of expertise have participated in, we short-listed two providers responding specifically to the specifications of CASRA. And then a test phase was launched on the evaluation of three assets atypical, which has enabled us to appoint our partner, ” adds Aziz Elhaouel.

Moreover, the compliance of banks influence their commercial offering. “The valuation of real estate has the consequence of new presentations of their offers of credit to individuals. Banks are in the process of adapting their marketing approach by choosing, for example, to promote the reliability of the assessment. It is a virtuous process, generating added value for the lender and the consumer : the evaluation considerably improves the structural quality of the credit files, ” says Samy Benarroch.

About Arca Board
In 27 years of existence, Arca Council has established itself as the French leader of the investigation and of the investigation in France, but also internationally. Arca Board accompanies its clients through four areas of expertise that allow him to assist companies on a daily basis in their decision-making and in their strategy : Pole Surveys and Investigations, Pole Reliability, and Bill Eckert, centre for Special Business and International, a Hub of real Estate Expertise.
Arca Board has 50 employees involved in 120 countries around the world. The company has achieved in 2016 a turnover of 6.7 million euros.
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