From March, 'Sale and Leaseback' for Mortgage Loan Defaulters Struggling with Repayment

Financial Services Commission and Banking Sector Hold Inclusive Finance Meeting on 22nd: "Joint Efforts to Support Low-Income Mortgage Delinquents"
Banks, KAMCO, and Credit Counseling & Recovery Service Sign Joint MOU to Strengthen Debt Adjustment Support for Low-Income Mortgage Delinquents
New SLB Program Established... Up to 11 Years of Lease Residency After Mortgage Debt Settlement, Priority Repurchase Rights Granted Upon Lease Termination

[Asia Economy Reporter Jo Gang-wook] Starting from March 2, a joint measure by all banks will be implemented to strengthen housing stability and recovery support for low-income mortgage loan borrowers in arrears. This applies to borrowers with a combined annual income of 70 million KRW or less and a single home with a market price of 600 million KRW or less.

The Financial Services Commission, the Korea Federation of Banks, and 14 commercial banks held the "Banking Sector Inclusive Finance Meeting" at the Korea Federation of Banks on the 20th, pledging the banking sector's active role in enhancing financial accessibility for vulnerable groups such as youth and low-credit borrowers and supporting borrowers in arrears this year. In particular, the banking sector, Korea Asset Management Corporation (hereinafter "KAMCO"), and the Credit Counseling & Recovery Service (hereinafter "CCRS") signed a joint Memorandum of Understanding (MOU) to strengthen support for debt adjustment for low-income mortgage borrowers in arrears, committing to actively support these borrowers in repaying their debts without the risk of losing their homes.

Under this agreement, CCRS will refer low-income mortgage borrowers in arrears who have been denied debt adjustment to KAMCO to provide additional adjustment opportunities. Additionally, KAMCO will reorganize the "purchase-type debt adjustment" into a "debtor application-centered" system. Through this, KAMCO plans to purchase borrowers' delinquent claims at a fair price mutually agreed upon with financial companies and provide debt adjustment.

For borrowers who find it difficult to repay their debts even after debt adjustment, a specialized "Sale and Leaseback (SLB) Program" for low-income borrowers in arrears will be newly established. This program targets borrowers with a combined annual income of 70 million KRW or less, owning a single home valued at 600 million KRW or less, and who actually reside in the home. The borrower sells (Sale) the owned home to KAMCO to clear the debt, then leases back (Leaseback) the home for long-term residence, and at the end of the lease, is granted a priority repurchase right (Buyback Option) for the home.

Through this, borrowers can repay their debts and use the remaining proceeds from the home sale as a deposit to lease the home long-term at market rent for up to 11 years. At the end of the lease, even if the home price has increased, they are granted a priority repurchase right to buy the home at a price lower than the market value. This program will be initially launched in the first quarter targeting bank debtors and gradually expanded to the entire financial sector.

At the meeting, bank presidents and heads of related institutions who attended pledged to ensure the smooth implementation of the "Strengthened Debt Adjustment Support Plan for Low-Income Mortgage Borrowers in Arrears," for which the MOU was signed. In particular, the banking sector agreed with the Korea Inclusive Finance Agency to increase the supply scale of "Hetsalron17" from 500 billion KRW to 800 billion KRW this year and will review with the Korea Housing Finance Corporation plans to expand the supply target of the "Youth Customized Jeonse and Monthly Rent Loan," which currently totals 1.1 trillion KRW. They also discussed various ways to enhance borrower convenience and promotion, including expanding non-face-to-face channels for low-income finance and providing guidance on the debtor representative system.

Financial Services Commission Chairman Eun Sung-soo said, "The strengthened debt adjustment support plan for low-income mortgage borrowers in arrears is a meaningful project that complements the existing CCRS debt adjustment system," and urged, "Please prepare so that it can be implemented smoothly from March."

He added, "For policies to be effective, it is as important to inform those in need well as it is to create new products or systems," and requested, "Please cooperate so that existing products like Hetsalron17 and Youth Customized Jeonse and Monthly Rent Loans, which are well known to low-income people and actually provide much help, can have their supply scales further expanded."