Activos De Información

Article 7 (termed “Advance repayment of residential mortgage loans, prohibition of penalty clauses) of Decree Law No. 7 of 31st _{January 2007, converted with amendments into Law No.}

40 of 2nd _{April 2007, introduced a prohibition on penalties (or other compensation, however}

termed) for customers who fully or partially repay loans in advance, in case of new mortgages stipulated for specific purposes. In detail:

a) Decree Law No. 7/2007 established the exclusion from these penalties for mortgages/loans granted from 2nd _{February 2007 onwards for the purchase of housing by private individuals}

who intend to live in it as a first home;

b) Law No. 40/2007 (which converted Decree Law No. 7/2007) amended the scope,

establishing exclusion from the penalties mentioned for mortgages/loans granted from 3rd

April 2007 onwards for the purchase or refurbishment of properties used for housing or the performance of economic or professional activities by private individuals.

In order to simplify operations, the UBI Banca Group considered it easier to also grant exemption from these penalties to the mortgages/loans mentioned in point b) from 2nd

February 2007 onwards, even when not included in point a).

However, for mortgages already granted as at 2nd _{February 2007, paragraph 5 of the cited}

article 7 states that the Italian Banking Association and the relevant national consumer associations should define general rules within three months of that date to introduce fairness

to these mortgages by setting a maximum amount on the penalty for their full or partial advance repayment.

On 2nd _{May 2007 the ABI (Italian Banking Association)-Consumers Association protocol was}

signed as provided for by paragraph 5 of the cited article 7. It identified the parameters for determining the maximum penalty due for full or partial repayment of the mortgages/loans already granted on the date on which the new regulations entered into force.

The maximum limit set on the penalties is a percentage of the amount of the loan granted which varies according to the type of interest rate (fixed, variable or mixed), the date granted and the remaining life of the loan for which repayment or reduction is requested.

In detail:

(i) for mortgages granted before 1st _{January 2001, whether with a fixed, variable or mixed}

rate, the agreement states that the penalty may not exceed 0,50%. Where the mortgage is near to expiry the penalty falls to 0,20% in the third year before it ends, while there is no penalty in the last two years. There are then some clauses to safeguard borrowers whereby when the penalty in a loan contract is equal to or lower than the maximum limit just mentioned, this reduces by 0,20% down to zero (where the contract penalty is equal to or less than 0,20%). A similar reduction of 0,20% is allowed even in cases where the penalty set is only a little above the maximum set in the memorandum (up to a maximum of 0,19%);

(ii) for mortgages granted since 1st _{January 2001, the agreement states that for those with a} variable rate, those with a mixed rate if the type of rates changes at most every two years and those which change at a rate in time greater than the two year period mentioned, but for which the existing rate is variable, then the conditions contained in the preceding point (i) apply (i.e. 0,50%-0,20% and 0% for the last two years) and the same safeguarding clauses also apply.

For mixed rate mortgages where the rate varies with a frequency greater than once in two years and where the rate for the current period is fixed, the penalty is reduced to 1,90% when advance repayment is made in the first half of the fixed rate period and to 1,50% when repayment is made in the second half. For these mortgages also, the penalty falls to 0,20% in the third year before expiry and to 0% in the last two years. There are, however, further reductions in cases where contract penalties are equal to or less than the maximum limits indicated (0,25% if the contract penalty is equal to or greater than 1,25% and 0,15%, down to zero, if it is less; the benefits are in any case granted even when the penalty is only a little above the maximum limits cited).

For fixed rate mortgages the penalty reduces to 1,90% when the advance repayment occurs in the first half of the mortgage and it is further reduced to 1,50% when repayment is made in the second half. The penalty falls in the third from last year to 0,20% for these mortgages too and to 0% in the last two years. The same safeguarding clauses mentioned above also apply.

The agreement also states the following:

- the conditions described above are changed on request by the customer;

- it is compulsory for banks to inform customers of the contents of the agreement;

- for mortgages fully or partially repaid with a full penalty between the date of the entry into force of the legislation and 31st _{May 2007, payment of the balance on commissions already}

paid is made on request of the customer.

As a result of the agreement cited, the UBI Banca Group acted in the cases concerned and according to the methods agreed to reduce these penalties on mortgages granted prior to 2nd

February 2007 “for the purchase or refurbishment of properties used for housing or the performance of economic or professional activities by private individuals”.

State subsidies - Tax incentives for reorganisation in the