Consumer group pushes class action over mortgages

A Korean consumer advocacy group said Thursday it is moving to lodge a class action suit against local financial firms' practice of lending mortgages at a time when the slumping property market undercuts the value of collateral.

The Financial Consumer Agency said that it is preparing for the move within this year, claiming that local financial firms are unduly passing on burdens to borrowers even as falling home prices are their fault.

"In given macroeconomic conditions with falling housing prices, it is not right for local financial firms to pass on the responsibility only to borrowers by using any means to recollect loans," said Cho Nam-hee, the head of the agency. "Financial firms should hold part of the accountability."

He said the accused will be local banks, savings banks and insurers, which deal with mortgage loans.

The move came as the tepid property market is undercutting the value of collateral, raising the number of mortgage borrowers under high pressure to repay debt.

Home-backed lending extended by local banks reached 223.8 trillion won ($197.9 billion) as of the end of May, accounting for 27.2 percent of banks' won-denominated loans, according to the central bank.

South Korea's financial watchdog said Wednesday that it is seeking to ease households' repayment burden of home-backed loans as the slumping property market erodes the value of collateral.

The Financial Supervisory Service said it is studying plans to have banks convert maturing mortgages exceeding a lending limit, or the loan-to-value (LTV) ratio, into credit loans instead of retrieving them.

The LTV ratio is one of the main tools to curb household loans by restricting the maximum amount of money that homeowners can borrow in line with the value of their collateral.

Meanwhile, the agency said its push to file a class action suit against banks' alleged collusion to fix rates on certificates of deposit (CD) is gaining momentum.

Suspected rate-fixing may have contributed to increasing households' debt-serving burden as rates on half of mortgage loans move in tandem with CD rates, market watchers say.

The agency said that suspected rate collusion is estimated to have incurred around 1.6 trillion won in damage per year for borrowers.

(Yonhap)