Ministry of Land, Infrastructure and Transport Unfairly Criticized Over Didimdol Backlash: "Soundness Management... Criticism of Reversal Is Excessive" [1mm Financial Talk]

Government "Firm Stance on Managing Household Loans Related to Housing"
Balancing Support for Genuine Buyers and Household Debt Management 'Dilemma'

Ahead of the comprehensive audit by the National Assembly's Land, Infrastructure and Transport Committee scheduled for the 24th, the Ministry of Land, Infrastructure and Transport (MOLIT) has found itself in a dilemma. After verbally instructing banks to tighten the eligibility criteria for the Didimdol Loan, a mortgage product for low-income households without homes, MOLIT faced public backlash over what was perceived as a 'sudden reduction in loan limits.' This criticism intensified as the National Assembly joined the fray. Ultimately, MOLIT stepped back and decided to present supplementary measures by the time of the audit, but it could not avoid criticism for causing confusion in the loan market by reversing its instructions.

Is It Loan Management Guidance or Pressure?

Although there have been several recent policy confusions, the government's current stance on household debt management remains firm. MOLIT stated that it agreed to review the matter because the National Assembly requested an examination of the issue, and it considers claims that it reversed policy to be exaggerated. A MOLIT official told Asia Economy in a phone interview, "From MOLIT's perspective, the top priority is to manage the Housing and Urban Fund stably and enable as many applicants as possible to receive loans, while also managing the total volume of household and policy fund loans in the process." The official added, "We hold weekly meetings with financial authorities, and the measures that come out of these discussions are consistent with the current household debt management policy." In a press release issued last Friday, MOLIT also stated, "It is not true that the Didimdol Loan reduction measures have been suspended, fully deferred, or withdrawn," leaving open the possibility of future implementation of such measures.

According to MOLIT, the recent instructions sent to banks were guidelines to strictly adhere to application deadline rules and other requirements related to the Didimdol Loan. A MOLIT official explained, "If we had intended to reduce the system itself, such as loan limits or income requirements, we would have changed the regulations and notified banks in advance to implement the changes uniformly." Regarding the instruction to halt 'post-registered collateral loans' for newly sold but unregistered apartments, the official elaborated, "Since loans are disbursed before collateral is secured, this could pose a risk to the fund's soundness, so we asked banks to guide applicants to use alternatives like group loans first." The official further explained that the cancellation of the 'guarantee exemption'?which allows loans including the priority repayment amount for small tenants (KRW 55 million in Seoul) when backed by the Korea Housing Finance Corporation guarantee?was intended to discourage the issuance of additional guarantees that would further deplete fund resources.

However, from the perspective of commercial banks, these government instructions inevitably feel burdensome. A commercial bank official said, "There were several verbal instructions from MOLIT to refrain from handling Didimdol Loans, and when a clear decline was not observed, they even checked why the numbers were not decreasing." The official added, "It felt as if the government was being pressured and acting hastily because household debt was not being controlled." While the government's intention may have been 'guidance,' banks interpreted it as 'pressure.'

As the comprehensive audit approaches, interest is growing in what supplementary measures MOLIT will present regarding the Didimdol Loan. On the 21st, lawmakers from the Democratic Party's Political Affairs Committee and Land, Infrastructure and Transport Committee held a press conference strongly demanding the withdrawal of Didimdol Loan regulations. A National Assembly official said, "While managing household debt is important, there was almost a situation where even those who had contracts to receive loans were suddenly unable to get them just because of a phone call from MOLIT." The official added, "We want to withdraw this measure and discuss limiting loans with a set timeframe."

Jeonse Loans Consider Landlord Repayment Ability... "A Deliberation to Avoid Public Backlash"

Every time the government and financial authorities try to reduce loans, they face a 'real demand dilemma.' Recently, the focus of household loan management policies by the government and financial authorities has shifted from the 'borrower' to the 'landlord.' Since direct regulations on those seeking housing-related loans, such as reducing Didimdol Loan limits and restricting loans for single-homeowners, have met strong opposition for suppressing genuine demand, the regulatory emphasis appears to be moving toward managing landlords.

The financial authorities are considering landlords as the actual borrowers of jeonse (long-term lease) loans and are exploring management methods accordingly. Since landlords hold the deposit until the contract ends, the authorities argue that landlords' repayment ability should be assessed during screening. A Financial Services Commission official explained, "Landlords' repayment ability can be evaluated in various ways, but previously it was very limited, mainly through the Loan-to-Value (LTV) ratio." The official continued, "Going forward, even if housing prices fall, we will focus on whether landlords can repay the deposit (loan), considering factors such as national tax delinquency, credit delinquency, and past cases of non-returned jeonse deposits."

A financial industry official said, "The overarching principle of reducing household loans cannot be changed, and based on recent experiences, the government and authorities seem to have concluded that directly refusing loans to real demand borrowers inevitably triggers public backlash." The official added, "They appear to be trying to secure policy effectiveness primarily by 'targeting landlords' while avoiding negative public sentiment."