Mary Karugaba
9 December 2008
Kampala — THE Governor, Bank of Uganda, Emmanuel Mutebile, has warned that the Mortgage Bill could cause a credit crunch in the country if not handled well.
A credit crunch is a situation in an economy where money is tied up in debt and not immediately available for further lending. It is mainly felt in the housing sector.
The current global credit crunch started in the United States when people with poor credit ratings were unable to meet higher debt repayment, so tying up billions in bad debts.
As more mortgages were foreclosed in America, their previously buoyant housing market nose-dived, affecting the global financial power.
Appearing before the physical infrastructure committee yesterday, Mutebile said if the Bill is passed in its current form which allows courts to re-write terms of contracts, there would be more sub-prime prices in the country because the risk in the mortgages would change.
Mutebile told the MPs that the Mortgage Bill should promote rather than hinder access to credit.
The governor said the sub-prime prices in the US were caused by mortgages being resold and re-written without reference to the original mortgage.
"This could easily occur here as you re-write the mortgage terms of contract," he said.
Mutebile was presenting the bank's views on some of the proposed provisions in the Mortgage Bill 2007 before it is debated in Parliament.
Some of the Bill's objectives are to consolidate the law relating to mortgages and to repeal the Mortgage Act.
The provision, according to Mutebile, gives court unlimited powers to grant relief to a mortgager, a fact that would change the mortgage risk.
"In view of the fact that banks rely mainly on mortgaged property to secure their lending operations, Bank of Uganda would like to draw your attention to the adverse effect the Bill might have on the mortgage lending," he said.
The urban development state minister, Urban Tibamanya, said his ministry had agreed to review or delete some of the clauses that the bankers were uncomfortable with.
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