Single pickets of the VDVZ participants near the Ministry of Foreign Affairs.Dmitry Yurin, a member of the National Movement of Foreign Currency Mortgage Holders from St Petersburg, does his best to survive on 200 roubles (£2.50) a day. Officially, Dmitry is unemployed and has no means to cover his monthly mortgage payment for the studio apartment he purchased: his wife left and now wants him to pay child support. But Dmitry, one of thousands of Russians in peril due to having taken out a foreign currency mortgage, has big plans for the future.
“By the beginning of March next year, I intend to either win back my apartment or go to jail,” Dmitry tells me. “It’ll be the election, and Putin most probably will be running. Right at that very moment I plan to go into a bank with an anti-Putin poster, in order to draw attention to my problem. I’ll become a political prisoner like Ildar Dadin. And then I’ll leave Russia. Why would I want to live in this country?”
Dmitry bought his 290 square-foot bedsit in 2007. The apartment was meant to be a starter home and Dmitry planned to pay off the mortgage in seven years. He was employed by a regional Panasonic office as a marketing expert, and was paid in U.S. dollars, which is why he decided to take out a mortgage in U.S. currency.
“At the time, everybody thought that financial crises and market crashes belonged to the past… in the era of primitive accumulation of capital. Then a true man of the people came to power, everything was on the rise, the country was reborn. I was a patriot back then. I supported the government right up until 2014,” Dmitry says.
Borrowers backed into a corner
Four months after Russia’s federal aid programme for people with foreign currency mortgages was relaunched this August, borrowers are still picketing government offices in Moscow, calling federal support measures a farce. Dmitry’s story shows why.
The Russian currency crisis of 2014 delivered the fatal blow to Dmitry’s family budget. By then, Panasonic had closed down its St Petersburg office, and Dmitry was running his own business in Veliky Novgorod. When the crisis struck, he made a decision to return to St Petersburg. He decided to earn some extra money as a cab driver, and he’s still working as one today. Nobody wants to take someone on with debts, even if they’ve got a good CV. Dmitry also realised that staying officially unemployed made his life easier.
Single pickets of the VDVZ participants near the Ministry of Housing and Communal Services.“Your mortgaged apartment is suddenly worth less than you owe,” Dmitry explains. “They seize the property, but you still owe a surplus debt that you must pay. Now you’ve got nothing, you’re working at the office and they’re still taking your money. The only option that remains in these circumstances is to become a person with ‘uncollectible’ debt, which basically means hiding away from the bailiffs. How could you possibly hide from them, when you spend your entire day at the office?”
Dmitry submitted an application to the federal aid programme for foreign currency mortgage borrowers, but the request was rejected by Unicredit bank. Instead, the bank proposed a 24-year mortgage extension — with a monthly payment of 22,000 roubles (£2,500). By the time Dmitry pays off his mortgage under this arrangement, he’ll be 64, and there’ll be no guarantee that the Khrushchev-era building where his apartment is located won’t be scheduled for demolition. Dmitry rejected this offer. He’s currently waiting for the outcome of his lawsuit against the bank and his foreclosed property to be sold off in an online auction.
“Your mortgaged apartment is suddenly worth less than you owe. They seize the property, but you still owe a surplus debt that you must pay”
Dmitry compares the National Movement of Foreign Currency Mortgage Holders (abbreviated in Russian as VDVZ), which he joined in 2014, with Gandhi’s Satyagraha movement. He recalls the numerous victories VDVZ achieved when crowds of mortgagors stormed bank premises and demanded that the management agree to meet and negotiate.
Dmitry believes that bank management refuses to negotiate with him now because of his involvement in VDVZ. Only a few individuals are calling attention to the situation with foreign currency mortgages today, he says. That’s because some borrowers managed to negotiate with the banks, some have simply bowed to reality, others have not lived to see the day.
A programme of discrimination
Russia’s federal aid programme for people with foreign currency mortgages was launched in June 2015. It cost the budget some 4.5 billion roubles (£57.2m). The Agency for Housing Mortgage Lending (AHML) was selected to implement the programme. The Russian government expected to see at least 22,500 mortgage borrowers receive aid and support. However, due to lax regulations it was mainly people with mortgages in roubles who participated. After the November 2016 amendments, any mortgage-holder with a 30% decrease in income could expect to receive federal aid.
The programme’s funds were wiped out by March 2017, three months before the scheduled deadline. Around the same time, VDVZ members met with Anton Siluanov, Russia’s Minister of Finances, and asked him to relaunch the programme and focus on foreign currency borrowers. The programme was rebooted in late August 2017, receiving additional two billion roubles (£25m) from the federal reserve fund. The government estimated a minimum of 1,300 mortgage debts to be restructured through funds allocated.
Most VDVZ members who took out mortgages in 2006-2008 claim that the banks were virtually imposing foreign currency mortgages on them, leaving no other choice
The aid package will focus primarily on debtors with annual mortgage payment increase exceeding 30% — i.e. foreign currency mortgage holders. However, this provision discriminates against some borrowers, namely those who had been diligently repaying their debt before the 2014 financial crisis, putting down larger monthly mortgage payments in the hope of paying off their loan early. Only Russian nationals with at least one minor or dependent student under the age of 24 are eligible for aid, though the aid package extends to combat veterans and persons with disabilities.
It is also imperative that a household income over the period of three months before the aid package application is submitted does not exceed the combined amount of two living wages per household member.
Borrowers who meet the eligibility criteria can submit an application to their respective bank. However, the bank can reject an applicant at this stage already by stating that it refuses to deal with customers in default or arrears, as in Dmitry’s case.
If the bank and the customer cannot come to an agreement, the customer submits the requisite papers to the bank, which in its turn forwards them to AHML. Subsequently, AHML allocates a lump sum payment to the bank in the amount of up to 30% of debt owed, but not exceeding 1.5m roubles (£19,000), while the bank concludes a new rouble-based agreement with the borrower.
In special circumstances, the agency can provide financial aid in larger amounts, as well as support individuals who are not immediately eligible, which however requires a decision by an interagency committee established by the Ministry of Construction, Housing and Public Utilities.
The media has practically turned a blind eye to these protests. Foreign currency borrowers are yesterday’s news
Representatives of VDVZ believe numerous programme requirements are discriminatory. They believe the aid package should extend to individuals of retirement and pre-retirement age, who would find it hard to solve their housing problems after having lost their residences. Such people are practically deprived of aid, since they usually have children older than 24 years of age and none of whom are students.
Borrowers also request that the programme be amended to include an additional provision regulating the financial involvement of banks in rehabilitation of mortgages. They believe that the absence of such a provision makes it possible for the creditor to abstain from co-funding and simply act as intermediary between the borrower and AHML. VDVZ representatives also claim that the programme leaves borrowers whose debt has been sold off to third parties exposed and vulnerable.
Foreign currency mortgagors resumed their protests outside the Russian Parliament on 23 October and are still picketing the building. Pickets have also been held outside the Ministry of Construction, Housing and Public Utilities and the Ministry of Foreign Affairs. The borrowers believe that the latter must pay attention to the fact that foreign banks are reluctant to negotiate.
However, the media has practically turned a blind eye to these protests. Foreign currency borrowers are yesterday’s news. The past three years have had their fair share of mortgage protests. The borrowers went above and beyond rallying and picketing. They went on hunger strikes on bank premises a number of times, “occupied” community liaison offices of parliamentary deputy and Central Bank officials, set up roadblocks.
Borrowers also ran joint campaigns with long-haul truck drivers from the Russian Union of Truck Operators. The police and security services have long since identified their ringleaders. But borrowers refuse to stop.
Most interactions with state officials would kick off with the question: “What on earth made you take out a foreign currency mortgage?”
“Some banks had initially agreed to compromise and restructure the foreign currency mortgage rates before the federal aid programme was launched. This was the direct consequence of actions we took,” says Alexander Alexandrov, another VDVZ member from St. Petersburg. “I’m certain that the aid package itself is the outcome of our activities.”
Alexander explains that, as of recently, a number of elected officials are eager to engage in productive negotiations. Prior to this, most interactions with state officials would kick off with the question: “What on earth made you take out a foreign currency mortgage?”
Russian authorities have also alleged publicly that foreign currency borrowers have only themselves to blame. For example, Dmitry Peskov, Putin’s press secretary, told the media in January 2016 that “this [foreign currency mortgage] was a choice and gamble these people made in undertaking obligations on such terms that are currently putting them in dire straits.”
When banks leave customers without a choice
Most VDVZ members who took out mortgages in 2006-2008 claim that the banks were imposing foreign currency mortgages on them.
Alexander applied for a loan at Raiffeisenbank to purchase a completed apartment in 2007. His baby boy had just been born and the family needed to make a housing decision fast. The bank rejected a rouble-based mortgage, since Alexander monthly mortgage payment exceeded half of his monthly income by a mere 1,000 rubles. Yet the bank instantly offered a foreign currency mortgage that decreased the payment down to 24,000 rubles a month. These terms were valid only during the initial year of the mortgage. In 2008, a stronger U.S. dollar lead to a dramatic increase in monthly payments.
“I agreed to take out a foreign currency mortgage because I had no other choice. In addition, I strongly believed that we were living in a different country and no financial crisis of 1998 could ever be possible again,” explains Alexander.
According to the AHML, the 2008 crisis drastically cut down on foreign currency credits: 26% of total loans before the meltdown as compared to less than 1% by 2014. However, banks seemed to be in no hurry to convert the existing foreign currency debts into roubles.
“In 2012, I went to the bank office and submitted a request stating that I hadn’t recovered financially from the latest crisis and asked to convert my loan into roubles,” Alexander recalls. “The bank rejected my request, stating that no such programme existed.”
“I agreed to take out a foreign currency mortgage because I had no other choice”
Many borrowers believe that the banks intentionally refused to play ball with their customers in anticipation of generating excess profits in the impending crisis. Irina Vostrikova, a VDVZ activist, believes that both the banks and the government had been well aware of the upcoming devaluation of the Russian rouble and made no efforts to protect savings and loans.
Vostrikova quotes Guidelines for the Single State Monetary Policy in 2013 and for 2014 and 2015 approved by the Bank of Russia as proof: “[A change in Russian and international market sentiment], along with the Bank of Russia’s plans to abandon its exchange rate-based operational indicators, will increase uncertainty over rouble exchange rate dynamics in the medium term. In this situation, exchange rate risk management by economic agents in the real and financial sectors will become increasingly important.”
Alexander has just one word to describe the first few weeks after the ruble collapse at the end of 2014: “Panic.” Dozens of borrowers are said to have perished in 2014-2017, with some taking their own lives.
Galina Samorokova, a VDVZ activist from Moscow, tells me one such story: “Andrei Shcherbakov died less than six months ago, he was 40, he left behind three kids. Sovcombank, his creditor bank, refused to make concessions and Andrei shot himself… I will never understand this. If you’re going to shoot yourself, do it inside the bank building, draw at least some kind of public response,”
Galina has been active in borrowers’ protests since the start of the 2014 crisis. She had been a senior manager in a company but was sacked by top management who saw her on TV during coverage of a protest. Her husband left her. Galina is certain that her phone has been tapped by the police and that Raiffeisenbank, which she picketed with a poster saying “Austria is the birthplace of Raiffeisenbank and Hitler,” will never back down to her.
Yet Galina still hopes for the best: “We have been battling this financial monstrosity alone for some years now. Nobody wanted to help us, they said it was all our own fault, they called us incompetent fools despite the fact that many of us have master’s degrees in economics! But now we have become battle-hardened and self-confident individuals.”
The silence of the Russian state
Maria Litinetskaya, managing partner at Metrum Group real estate agency, believes that the main reason behind the issue of foreign currency mortgages in Russia is lack of government control and a laissez-faire policy toward interactions between borrowers and creditors.
“Despite the overall stability of currency, the Eurozone still is not immune to exchange rate movements. In light of this, the European Commission has adopted the Mortgage Credit Directive that ensured borrowers with a right to convert the loan into an alternative currency…The Russian authorities have never adopted such measures,” she says.
Various authorities and Central Bank representatives have been vocal about the necessity of providing aid packages to foreign currency mortgage borrowers since the first days of the 2014 crisis. Bills were put before the State Duma related to this issue: a law on mortgage holidays, a law prohibiting seizure in mortgage foreclosures, a law on translation of foreign currency debt into rubles. None of them were passed.
“The banks have got nothing to do with this. They suffered because of exchange rate slumps just like anybody else”
The Central Bank, in its turn, confined itself to recommending banks to translate problem mortgages into roubles at a “fair” rate of 39.34% (in accordance with the ruble exchange rate set by the Bank of Russia on 1 October 2014). Even the current federal aid package for mortgage borrowers cannot be applied without obtaining the bank’s consent.
Dmitry Speransky, head of Speransky Forecast Company, compares it with gambling: The state had set up a “casino” and borrowers banked on foreign currency loans, but their odds turned against them. The Russian government, seemingly incapable of fulfilling its duty as a guardian of national currency stability, refuses to take responsibility.
Single pickets of the VDVZ participants near the Ministry of Foreign Affairs.“You can shout yourself hoarse in finding who's to blame,” says Speransky. “Foreign currency loans were a juicy deal in many respects, but much riskier than their alternatives. The banks have got nothing to do with this. They suffered because of exchange rate slumps just like anybody else. They used dollar loans to lure dollar deposits. Now they must settle with creditors in dollars too.”
Yet stories of borrowers whose applications to convert their mortgages into roubles were denied before the downturn serve as a vivid testimony that disproves the very concept of creditors’ “innocence”.
Waiting for a moratorium
Following the 2014 rouble collapse, Russian establishment figures have repeatedly advocated a complete ban on foreign currency mortgages. The State Duma reviewed bills banning foreign currency mortgages, but never managed to pass them.
Foreign currency borrowers who had taken out mortgages before 2008 find little sense in such restrictions. They believe that their personal stories create enough negative publicity for foreign currency mortgages, while legislators should focus on more pressing matters.
Borrowers have been waiting for the Russian Parliament to announce a moratorium on seizures of foreclosed apartments, and introduce amendments to the current financial aid programme.
The State Duma meanwhile passed the law obligating banks to notify borrowers about risks associated with foreign currency loans only in November 2017. This belated regulation, passed after hundreds of lives have been shattered, feels more like a cruel joke than anything else.