Delinquent Mortgages Advance

VedomostiPeople waiting in line at a branch of VTB-24 to discuss their mortgages.
Overdue mortgages now account for 11.5 percent of those held by the state Agency for Mortgage Lending, and while the figure may not be representative of the situation throughout Russia, bankers say they are worried that borrowing may become more expensive.

In the fourth quarter, the amount of mortgages with payments overdue increased 37.3 percent to 11.5 percent of the 54.5 billion rubles ($1.6 billion) in loans on the agency's books, according to figures in its quarterly report.

The share of debt arrears in the portfolio of the Agency for Mortgage Lending, known by its acronym AIZhK, has been rising steadily. Previously, the growth had been primarily among chronic nonpayers who were more than half a year behind, a trend the agency attributed to the lengthy procedure for foreclosing on an apartment.

In the last quarter of 2008, however, the agency reported an increase in new arrears. The number of loans that are 30 to 90 days behind on payments rose to 3.5 percent of the agency's portfolio, from 2.4 percent in the third quarter.

"The fresh arrears rose because of the worsening financial situations of borrowers who have lost their jobs or a significant part of their income," said Anna Yartseva, director of AIZhK's communications department. She said it was possible that a considerable number of the loans would be restructured but that the agency is just starting to process about 100 applications for such assistance.

Even before New Year's, the government knew that the crisis was causing a spike in mortgage arrears and approved a series of measures for individuals (restructuring loans through AIZhK) and banks (not counting restructured loans as bad assets), a government spokesperson said.

"I wouldn't call the AIZhK figures representative of the situation in the country. They account for no more than 15 to 20 percent of the market, and much of it is in the regions and with a fairly low-quality portfolio because of flaws in the work of the loan officers," said Anatoly Pechatnikov, a VTB-24 board member.

The situation is far more stable at Russia's largest banks, which did a better job choosing their clients. At VTB-24, for example, the number of loans with payments overdue more than 90 days has remained below 1 percent, Pechatnikov said.

"The arrears on AIZhK's loans are evidence that the situation is worsening throughout the country with the exception of large cities. AIZhK spans all the regions, but its clients are generally from the segment of the middle class that is more at risk of losing its income," said Tatyana Lozovskaya, managing director of Moskommertsbank.

A Sberbank spokesperson said that as of Jan. 1, mortgages with late payments accounted for 1.7 percent of its retail portfolio, with the majority of the arrears caused by emergency needs. Sberbank had a total of 504 billion rubles in mortgages and home equity loans at the start of the year.

"You need to take into account the differences in accounting methods. AIZhK considers a loan to be in arrears if a payment is 30 days late, whereas banks now may only start counting them after 90 days," said Mark Rubinstein, an analyst at Metropol. Some of the arrears can be hidden, as banks will give clients new loans to cover the earlier ones, which could become classified as problematic, he added.

"Layoffs in the regions, which began in the late fall, have already taken a toll on AIZhK's balance in the 30-day arrears, and banks could see that reflected in their figures in the first quarter," said Andrei Kuptsov, a vice president at TransCreditBank.

He said the scope of mortgage problems caused by lost jobs has been exaggerated, however.

"We also work in the regions, but even correcting for the specifics of our clients, we're not seeing anything catastrophic," he said, apparently referring to the bank's many loans to Russian Railways workers.

The AIZhK figures, Kuptsov said, are the result of a portfolio that reacts to the tiniest changes in its clients' wealth.

Pechatnikov, of VTB-24, said income problems were not the only reason nonpayments are increasing. Some lenders, he said, have stopped paying in anticipation of the government's promise to start restructuring loans.

If a borrower is having problems servicing his loan, a bank has only two options: selling the apartment or restructuring the debt, said Lozovskaya, of Moskommertsbank.

A low-income borrower might decide to sell the apartment personally, in which case he might get more for it. If the borrower is not cooperating with the lender, the bank can turn to the courts, which typically happens after 90 days of nonpayment. The legal proceedings typically take another half year.

After the court's ruling, the bank gets the right to sell the apartment through special firms at a price dictated by the court, typically the estimate of its price at the time of the loan agreement, Lozovskaya said.

The procedure for AIZhK, however, is longer. The agency only turns to the courts after the arrears reach a half year, as the borrower has that long to restructure the loan or to agree with creditors on covering the debt and continuing payment, said Yartseva, the AIZhK spokeswoman.

The legal proceedings can take one to two years, meaning that the apartments of those who are just falling behind on payments will only hit the market in the second half of 2010.