'Selling Existing Homes...' Over 700 Bank Borrowers Violate Loan Agreements

Borrowers Violating Loan Agreements Prohibited from Using Housing Loans for the Next 3 Years

[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] It has been revealed that about 700 borrowers who violated their agreements after receiving mortgage loans from banks had their loans recalled or their credit ratings downgraded.

According to the financial sector on the 20th, as of the end of March, the number of mortgage loan accounts that violated agreements at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was a total of 676. The outstanding loan balance of violations, excluding the repaid loan amounts, was approximately 62.1 billion KRW.

Looking at the types of agreement violations, the most common was the violation of the prohibition on additional home purchases, with 360 cases (13.7 billion KRW). This was followed by 270 cases (37.5 billion KRW) of violation of disposal condition agreements and 48 cases (10.9 billion KRW) of violation of move-in condition agreements.

A violation of the disposal condition agreement occurs when a borrower promises to sell an existing home when receiving a mortgage loan for the purpose of purchasing a new home but fails to actually dispose of the property. A violation of the move-in condition agreement refers to cases where a borrower takes out a mortgage loan to buy a new home but does not move into the property as promised.

In the case of violating the prohibition on additional home purchases, the borrower took out a mortgage loan under the purpose of "living stabilization funds" and purchased a new home. According to the September 13, 2018 measures, mortgage loans taken for living stabilization funds such as medical expenses or education costs, rather than for home purchase purposes, are allowed within an annual limit of 100 million KRW.

The five major banks recently reported to the financial authorities the "Status of Household Mortgage Loan Agreement Compliance," which compiled such violation cases. They plan to regularly check for agreement violations and urge debtors whose compliance deadlines have arrived to fulfill their agreements via phone calls and mobile text messages.

Once a violation is confirmed, the borrower is obligated to immediately repay the loan according to the basic terms and conditions of credit transactions, and the account is classified as a "delinquent account." Until full repayment is made, overdue interest will be added to the outstanding loan balance, and the borrower's credit rating is likely to be downgraded.

In particular, regardless of whether the loan is fully repaid, the information is transmitted to the credit information concentration agency, and based on this, housing-related loans from financial institutions will be restricted for the next three years.