Poland’s Parliament has enacted a new law creating a Borrowers’ Support Fund to help homeowners with mortgages that are underwater.  Official statistics by mortgage amount show that 24.3% of mortgages, totaling PLN 84.1 billion (approx. USD 22.7 billion) exceed the value of the borrowers’ homes, affecting 236,400 borrowers.

This phenomenon has resulted from the large number of Polish mortgage loans denominated in foreign currencies, particularly the Swiss franc. These loans have been negatively affected by the significant appreciation in the foreign currencies.

Consumer bankruptcy is not an effective solution.  From January through August 2015, a total of 1,024 consumer bankruptcies were announced in Poland, so it is very little used.

The law on the Borrowers’ Support Fund replaces an earlier proposal that would have placed on Polish banks 90% of the cost of supporting mortgagees in financial difficulty.  This proposal was met with strong opposition from the financial community, and has been shelved.

The new law still requires approval (expected this week) of minor amendments made by the upper chamber and signature by the President (also expected this month). The law will requires banks and cooperative credit-savings unions that have granted mortgage loans to pay an initial amount of PLN 600 million (approx. USD 162 million) into the Fund, in amounts proportional to their share of the total amount of Polish mortgage loans outstanding.  The Fund, administered by the state-owned Bank for the National Economy (BGK), will grant loans to mortgagees in difficulty to enable them to service mortgage debt.

The loans from the Fund will be up to PLN 1,500 (approx. USD 405) monthly for 18 months and be available to persons who are unemployed, whose mortgage loan amount exceeds their home’s value or whose monthly mortgage payments exceed 60% of monthly household income.  The loans are intended to be repaid once the person’s financial situation has improved.

If the Fund requires additional capital, the banks and cooperative unions will be required to provide additional funds.  Funds are to be made available until the end of 2018, but this date could be extended if the program is successful and the need continues.