Stricter Loan Screening Necessary on Non-Bank and Non-Mortgage Lending
- Date 2016-09-08
- Views 593
- HF and the Financial Services Commission hold a joint forum entitled ‘Household Debt: Key Issues and Policy Tasks’
- The forum seeks ways to address the risks of multiple lending and promote the JTYK reverse mortgage scheme among seniors
□ At the ‘2016 Housing Finance Forum’ recently held on the subject of the nation's household debt, a concern was raised about the current credit, non-banking, and non-mortgage lending practices, calling for tougher standards in assessing the repayment ability of credit borrowers. There was also a call for improved credit screening for middle-aged and older small business owners and potential measures against the rising risks of people engaged in multiple borrowing. At the same time, the fact that the percentage of older homeowners taking out a balloon payment mortgage is higher than that of younger homeowners highlights the importance of a reverse mortgage loan for senior homeowners.
□ Held under the theme ‘Household Debt: Key Issues and Policy Tasks,’ the forum was hosted jointly by Korea Housing Finance Corporation (HF, CEO Kim Jae-Chun) and the Financial Services Commission at the Bankers' Club in Myeong-dong, Seoul, on the 8th.
□ Tougher credit screening for middle-aged and older small business owners
In his presentation entitled ‘The Current Status of Household Debt and Its Macroeconomic Implications,’ In-Ho Song, a research fellow with Korea Development Institute (KDI), claimed that credit screening should be toughened for middle-aged and older self-employed people seeking mortgages, citing that there are no credit screening guidelines in place for mortgage loans taken out to start up a business. In particular, Mr. Song pointed out the high proportion of older people among balloon repayment mortgage borrowers and non-bank loan borrowers, stressing the need to improve their capability to repay their debt and encourage a reverse mortgage scheme for them. He also added, “The current lack of regulations on collective loans for new apartment buyers may lead to a sharp increase in the growth rate of borrowers not capable of repaying their debt. Moreover, as banks have recently toughened household loan screening criteria, these buyers are likely to turn to non-bank lenders or the secondary loan market. In light of this scenario, we need to resolve the current situation.”
□ The need to foster soundness in commercial real estate lending and manage the risk of senior households' debt Jeong-Rak Son, a research fellow with Hana Institute of Finance, gave a presentation entitled ‘The Links Between Housing Markets and Household Debt.’ In the presentation, he said, “More and more mortgage loans are being taken out on commercial properties, especially in the non-bank sector. The recent expansion in the supply of new homes will lead to an increase in the pre-sale of commercial properties and also in secured loans.” Mr. Son highlighted the need for the continued monitoring of security deposits, collective loans, and commercial properties and stronger management of the soundness of the loans taken out by middled-aged and older people and self-employed people.
He also went on to say, “Older people 60 years of age an above account for 23% of the entire household debt. Given that they are highly likely to dispose of their home in order to repay their debt and create money for living and that the burden of principal payments is rapidly increasing, it is necessary to consider a selective easing of the current regulations on housing finance to help first-time home buyers and relatively young home buyers.”
In their presentation entitled ‘The Structural Characteristics of Household Lending and the Possible Measures for DB Utilization,’ Song-Hee Bang and Hyung-Jun Kim, HF research fellows, explained the current lack of detailed financial statistics and said, “There is a need to build a national mortgage database and utilize it as primary data to support effective policy making.”
□ Adjustments necessary to the speed and size of principal amortization based on the Loan-to-Value ratio
Jin Lim, a senior research fellow with the Financial Services Commission, stressed, "The Loan-to-Value (LTV) ratio should have more flexibility.” He added, “Considering the link between the LTV ratio level and the housing market, it would be desirable to adjust the speed and size of principal amortization, not LTV limits, as amortized loans give borrowers a greater repayment burden, preventing them from taking out another loan and, in turn, curbing speculative lending.”
Jong-Chil Son, a professor at Hankuk University of Foreign Studies, said, “Heavily indebted households too often take out multiple loans. This shows a strong need for comprehensive measures that would encompass banks and non-bank and subprime lenders, and in particular, measures for self-employed and unemployed borrowers aged 51 to 65. It is necessary to promote the JTYK reverse mortgage program and ensure that they secure a stable stream of income in their later life.”
At the same time, Young-Bae Moon, Head of NICE CB Research Institute, remarked, “Considering that the structure of the nation's mortgage credit market is getting more complicated, it is necessary to break household borrowers into small segments by their repayment capability and closely examine the soundness of their debt. Households with high income and assets cannot be classified as vulnerable only because of their multiple loans. In assessing the soundness of household debt, not only gross indicators but also microeconomic monitoring on the income streams and wealth of borrowers should be utilized.”
□ These presentations were followed by an in-depth panel discussion moderated by Man Jo, a professor at KDI School of Public Policy and Management. The discussion participants were Young-Ho Koh, a secretary officer in the Financial Policy Department at the Financial Services Commission; Gyeong-Mo Koo, Head of the Bank Supervision Division at the Financial Supervisory Service; Yong-Man Lee, a professor at Hansung University; Myeong-Jik Kim, a professor at Hanyang University; Sang-Young Lee, a professor at Myongju University; Jae-Yeon Lee, a senior research fellow with Korea Institute of Finance; and Je-Heon Koh, an HF research fellow.
□ An HF official said of the forum, “This year's Housing Finance Forum aimed to diagnose the current status of the household debt issue and suggest practical policy measures. The views and opinions shared by the participants will help shape future policies on the management of household indebtedness.”
- The forum seeks ways to address the risks of multiple lending and promote the JTYK reverse mortgage scheme among seniors
□ At the ‘2016 Housing Finance Forum’ recently held on the subject of the nation's household debt, a concern was raised about the current credit, non-banking, and non-mortgage lending practices, calling for tougher standards in assessing the repayment ability of credit borrowers. There was also a call for improved credit screening for middle-aged and older small business owners and potential measures against the rising risks of people engaged in multiple borrowing. At the same time, the fact that the percentage of older homeowners taking out a balloon payment mortgage is higher than that of younger homeowners highlights the importance of a reverse mortgage loan for senior homeowners.
□ Held under the theme ‘Household Debt: Key Issues and Policy Tasks,’ the forum was hosted jointly by Korea Housing Finance Corporation (HF, CEO Kim Jae-Chun) and the Financial Services Commission at the Bankers' Club in Myeong-dong, Seoul, on the 8th.
□ Tougher credit screening for middle-aged and older small business owners
In his presentation entitled ‘The Current Status of Household Debt and Its Macroeconomic Implications,’ In-Ho Song, a research fellow with Korea Development Institute (KDI), claimed that credit screening should be toughened for middle-aged and older self-employed people seeking mortgages, citing that there are no credit screening guidelines in place for mortgage loans taken out to start up a business. In particular, Mr. Song pointed out the high proportion of older people among balloon repayment mortgage borrowers and non-bank loan borrowers, stressing the need to improve their capability to repay their debt and encourage a reverse mortgage scheme for them. He also added, “The current lack of regulations on collective loans for new apartment buyers may lead to a sharp increase in the growth rate of borrowers not capable of repaying their debt. Moreover, as banks have recently toughened household loan screening criteria, these buyers are likely to turn to non-bank lenders or the secondary loan market. In light of this scenario, we need to resolve the current situation.”
□ The need to foster soundness in commercial real estate lending and manage the risk of senior households' debt Jeong-Rak Son, a research fellow with Hana Institute of Finance, gave a presentation entitled ‘The Links Between Housing Markets and Household Debt.’ In the presentation, he said, “More and more mortgage loans are being taken out on commercial properties, especially in the non-bank sector. The recent expansion in the supply of new homes will lead to an increase in the pre-sale of commercial properties and also in secured loans.” Mr. Son highlighted the need for the continued monitoring of security deposits, collective loans, and commercial properties and stronger management of the soundness of the loans taken out by middled-aged and older people and self-employed people.
He also went on to say, “Older people 60 years of age an above account for 23% of the entire household debt. Given that they are highly likely to dispose of their home in order to repay their debt and create money for living and that the burden of principal payments is rapidly increasing, it is necessary to consider a selective easing of the current regulations on housing finance to help first-time home buyers and relatively young home buyers.”
In their presentation entitled ‘The Structural Characteristics of Household Lending and the Possible Measures for DB Utilization,’ Song-Hee Bang and Hyung-Jun Kim, HF research fellows, explained the current lack of detailed financial statistics and said, “There is a need to build a national mortgage database and utilize it as primary data to support effective policy making.”
□ Adjustments necessary to the speed and size of principal amortization based on the Loan-to-Value ratio
Jin Lim, a senior research fellow with the Financial Services Commission, stressed, "The Loan-to-Value (LTV) ratio should have more flexibility.” He added, “Considering the link between the LTV ratio level and the housing market, it would be desirable to adjust the speed and size of principal amortization, not LTV limits, as amortized loans give borrowers a greater repayment burden, preventing them from taking out another loan and, in turn, curbing speculative lending.”
Jong-Chil Son, a professor at Hankuk University of Foreign Studies, said, “Heavily indebted households too often take out multiple loans. This shows a strong need for comprehensive measures that would encompass banks and non-bank and subprime lenders, and in particular, measures for self-employed and unemployed borrowers aged 51 to 65. It is necessary to promote the JTYK reverse mortgage program and ensure that they secure a stable stream of income in their later life.”
At the same time, Young-Bae Moon, Head of NICE CB Research Institute, remarked, “Considering that the structure of the nation's mortgage credit market is getting more complicated, it is necessary to break household borrowers into small segments by their repayment capability and closely examine the soundness of their debt. Households with high income and assets cannot be classified as vulnerable only because of their multiple loans. In assessing the soundness of household debt, not only gross indicators but also microeconomic monitoring on the income streams and wealth of borrowers should be utilized.”
□ These presentations were followed by an in-depth panel discussion moderated by Man Jo, a professor at KDI School of Public Policy and Management. The discussion participants were Young-Ho Koh, a secretary officer in the Financial Policy Department at the Financial Services Commission; Gyeong-Mo Koo, Head of the Bank Supervision Division at the Financial Supervisory Service; Yong-Man Lee, a professor at Hansung University; Myeong-Jik Kim, a professor at Hanyang University; Sang-Young Lee, a professor at Myongju University; Jae-Yeon Lee, a senior research fellow with Korea Institute of Finance; and Je-Heon Koh, an HF research fellow.
□ An HF official said of the forum, “This year's Housing Finance Forum aimed to diagnose the current status of the household debt issue and suggest practical policy measures. The views and opinions shared by the participants will help shape future policies on the management of household indebtedness.”