[Tracking Jeonse Fraud Reality]⑬ When Can I Move In...? No News on 'Emergency Support Housing'

Secured 200 Emergency Support Housing Units
Controversy Over Effectiveness of Low-Interest Emergency Loans
Jeonse Fraud Using Return Guarantee Insurance Abuse

[Asia Economy Reporters Minyoung Kim and Minjae Kwak] The affected tenants unanimously agreed that the most urgent measure is to increase the supply of emergency support housing to at least three times the current amount. Since thousands of households in the Seoul metropolitan area, including Seoul and Incheon, are facing eviction due to auctions, resolving the deposit refund issue and securing temporary housing until a proper residence is found is the most urgent task. They also stated that the eligibility criteria for the ‘low-interest emergency loan’ using the Housing and Urban Fund should be improved to allow refinancing loans, not just loans for finding a new home.

[Image source=Yonhap News]

◆Thousands of households victimized by Jeonse fraud... but only 230 emergency support houses available= According to the Ministry of Land, Infrastructure and Transport on the 20th, the government has secured 200 public rental housing units in the metropolitan area, including 113 units in Incheon, for victims of Jeonse fraud. Including 30 forced management houses operated by the Korea Housing & Urban Guarantee Corporation (HUG), the total is only 230 units. Currently, 10 households affected by Jeonse fraud have moved into HUG’s forced management houses. However, the affected tenants say the secured emergency support housing supply is far too insufficient. It is estimated that 2,009 households in Michuhol-gu, Incheon alone have been auctioned due to Jeonse fraud. Even considering a minimum six-month delay from the start of the auction process to the enforcement of eviction orders, this is not enough to accommodate all victims.

Moreover, while the Ministry of Land, Infrastructure and Transport explained that those identified as emergency housing support recipients can move in immediately, the Incheon City Housing Department responded, "We are currently discussing the exact eligibility criteria, move-in procedures, and timing." The conflicting statements between the central government ministry responsible for policy and the local government responsible for detailed implementation are increasing confusion among victims.

◆Only deposits under 200 million KRW eligible... ‘Low-interest emergency loan’ criticized for lack of effectiveness= The recently announced ‘low-interest emergency loan’ by the government is also criticized for its lack of effectiveness. The ‘low-interest emergency loan’ using the Housing and Urban Fund can be borrowed from Woori Bank at an annual interest rate of 1.2% to 2.1%, for up to 10 years, with a limit of 160 million KRW (within 80% of the deposit). However, the loan is only available to victims without deposit insurance who are seeking a new home with a deposit of 200 million KRW or less.

The affected tenants point out that the loan purpose is strictly limited to ‘new Jeonse loans’ and demand improvements to allow refinancing loans. They argue that few people would choose to increase their debt by taking out a new loan while already paying interest on existing loans after losing their deposits.

Experts also emphasize the need for support measures to alleviate interest burdens. Professor Jaeman Im of Sejong University’s Department of Real Estate said, "For those without deposit insurance, it usually takes one to one and a half years to go through civil litigation and auction procedures, resulting in significant interest burdens," adding, "It is urgent to provide support measures that allow refinancing loans at low interest rates to endure this long period."

Due to its lack of effectiveness, the number of applications for this product, which started on the 9th, is reportedly low. A Woori Bank official said, "We cannot disclose the number of applications, but the number of applicants is not high."

A Ministry of Land, Infrastructure and Transport official explained, "If the loan purpose is not clearly defined, there is a risk of misuse, and refinancing loans are only possible if the Korea Housing Finance Corporation (HF), Seoul Guarantee Insurance (SGI), etc., extend or renew the loan guarantees." Jeonse loans are generally based on guarantees from HUG, HF, and SGI. Cooperation from these institutions is essential to enable refinancing loans.

Furthermore, as the benchmark bank bond interest rates used to calculate loan interest rates have soared, banks that need to execute refinancing loans are in a position where handling low-interest loans results in losses, making it difficult to expect unconditional cooperation from commercial banks, according to the Ministry of Land, Infrastructure and Transport.

◆Abuse of deposit insurance... need to lower the house price standard for refund insurance= The market believes that until last year, HUG’s recognition of new villa prices at about 150% of the publicly announced price led to the proliferation of many ‘villa kings.’ Jeonse fraudsters exploited HUG’s practice of applying up to 140% of the publicly announced price as the market price for guarantees by deliberately inflating the prices of newly sold villas. This practice was carried out covertly, and as housing prices fell, many ‘empty Jeonse’ cases occurred where the Jeonse deposit exceeded the market price, triggering numerous deposit refund accidents.

Professor Daejung Kwon of Myongji University’s Department of Real Estate said, "To prevent Jeonse fraud, instead of reducing Jeonse loan guarantees, the standard for calculating the house price limit for Jeonse refund insurance should be improved," adding, "The current house price standard, which allows up to 140% of the publicly announced price, should be lowered to 120%."

A HUG official said, "Before the public land price rose along with the rapid increase in housing prices, there were criticisms that the house price standard did not keep up with market prices," and added, "Rather than drastically lowering the house price calculation standard, we plan to monitor the trend and then make additional downward adjustments."