President Seo Jong-dae of Korea Housing Finance Co.(photo courtesy of KHFC)

Korea Housing Finance Co. (KHFC) will set up a mortgage bank specializing in loans against homes as mortgages in a bid to improve the housing mortgage market through the expansion of household loans and stable loan guarantees, financial market sources said recently.

The company had its board of directors meeting on Oct. 16 and agreed to set up the projected mortgage bank by as early as 2017 as part of the mid-to-long term strategy of the financial company, they said.

The mortgage bank is a type of financial company that is popular around the world including the United States and Japan. SBI Mortgage of Japan, identical to KHFC, converts funds by selling its bonds to a government-run housing financial support organization and provides loans with the funds on a long-term basis, more than 30 years in some cases, with fixed interest rates. The aim of the SBI is to stabilize the mortgage loan market by reducing the number of defaults by providing loans with easy terms tailor-made to suit customers with lower incomes.

The government sees the defaults on housing mortgage loans as a core problem in the country and is out to solve the problem. Because of this, the Financial Service Commission has implemented the prior housing mortgage pension subscription system this year, and in the first half of next year it plans to introduce a new housing loan product with reduced guarantee fees to create a resurgence of the housing mortgage market. 

In particular, the FSC plans to offer fixed interest rates and no-grade period mortgage installment repayment loans to around 30 percent of all bank loans by 2016. As of the end of last year, such loans accounted for 14.2 percent of all bank loans for fixed interest rate loans and 13.9 percent for non-grace period loans.  

KHFC’s motive to create a mortgage loan bank is to increase the fixed loans portion among all loans. Some concerns have been raised as the company’s moves have not been studied as carefully as they should have been. With expressions of concern for its moves in mind, KHFC plans to makes moves step-by-step, as a director said in the meeting that it is not proper to make efforts to set up a mortgage bank without careful study.

An official of KHFC said in reflection of concern for the sudden move, they set up a plan to go more slowly by introducing a mid-term plan made of a study to analyze the plan, setting up a model experimental plan, and then implementing the plan.

 In the meantime, KHFC has relaxed the admission qualification for the housing retirement pension in August, striking down the provision that the house owner couple should be 60 years old or older. After the change, the number who applied for admission rose to 60 cases and those admitted to 32.

The age of home owners averaged 63.5 years and their wives ages averaged 57.3 years with an average difference of six years. The average market price of their homes was 380 million won and the retirement payment averaged 800,000 won per house.

The admission number for the pre-admission house retirement plan for three months since June 1 when the program started totaled 292 with 202 admitted, coming to 18 percent of the total admission application numbers.

The average price of the houses for the pre-admission house retirement plan came to 310 million won and they took out 130 million won on average, or 42 percent of the market values of their houses, to repay their bank loans taken out with their houses as mortgages.