Govt pushes bank foreclosure powers in housing loan defaults under draft law

The government has moved to strengthen the legal framework for mortgage recovery, proposing to grant commercial banks enhanced powers to take over mortgaged properties in case of loan default after a structured 90-day notice period.

The proposal is part of amendments to the Financial Institutions (Recovery of Finances) Ordinance, 2001, currently under consideration by the National Assembly Standing Committee on Finance and Revenue.

Under the draft, banks would issue three separate notices of 30 days each to defaulting borrowers, allowing a total grace period of 90 days before foreclosure proceedings are initiated.

If repayment is not made after the final notice, financial institutions would be empowered to proceed with the sale of the mortgaged housing unit, provided all legal requirements and notices have been properly served.

The proposed changes drew strong reservations during a committee meeting held in Islamabad on Thursday, chaired by former finance minister Syed Naveed Qamar. Members warned that the framework could tilt excessive authority in favour of commercial banks.

Lawmakers stressed that while stronger foreclosure mechanisms are needed to expand mortgage lending and strengthen financial sector confidence, borrower protections and due process safeguards must also be ensured.

Following detailed deliberations, the committee deferred approval of the bill and directed the Ministry of Housing and Works to circulate a revised draft for further review.

In parallel, officials briefed the committee on the Prime Minister Apna Ghar Programme, a subsidised housing finance initiative aimed at supporting home ownership for low and middle-income groups.

Approved in August 2025 and revised in March 2026, the scheme offers financing of up to Rs10 million at a fixed 5 per cent markup, with repayment over 20 years under a 90:10 financing structure.

As of April 30, 2026, the programme had received 25,304 applications, with 8,990 approvals amounting to Rs37.154 billion. Disbursements stood at Rs5.071 billion across 1,845 beneficiaries.

The committee was also informed that Pakistan’s housing finance sector remains underdeveloped, with mortgage credit contributing only 0.3 per cent to GDP and 0.56 per cent of total private sector lending.

To address this gap, the government has set a target of financing 500,000 housing units over the next four years, requiring an estimated Rs3.2 trillion in funding. However, the Finance Secretary informed lawmakers that existing fiscal space is insufficient, indicating reliance on broader fiscal adjustments and potential rationalisation of development spending.

Committee members raised concerns over institutional readiness to meet such an ambitious target, particularly given the limited depth of the mortgage market and weak outreach to low-income and rural populations.

The panel recommended simplified loan procedures, flexible eligibility criteria and enhanced subsidy support to improve access to housing finance.

Officials also noted that the revised legal draft introduces a dedicated housing finance section and allows banks to reschedule, restructure or settle loans at any stage prior to property sale, alongside the extended 90-day foreclosure framework aimed at balancing recovery efficiency with borrower protections.