Regulator takes further steps to curb mortgage defaults

Korea's financial regulator is gearing up to take further countermeasures to help mortgage holders on the verge of default, as indebted households are feared to pose a threat to the economy, officials said Thursday.

Under the newly floated measure, mortgage holders will be eligible for the so-called pre-workout program in which banks offer lower interest rates or defer the period of repaying the principal, according to the Financial Supervisory Service (FSS).

The pre-workout will be applied to mortgage holders with a repeated delay of the monthly principal repayment or higher default risks because the value of their property offered as collateral is falling, the FSS said.

"The idea is to introduce a measure for banks to help debtors deal with their financial burden," an FSS official said.

The pre-workout, introduced in late June this year, had been initially applied for those with credit loans as part of efforts to curb ballooning household debts.

The regulator's move came as the local property market has taken a dive in the past few years, with some areas tumbling more than 30 percent since 2006, even forcing some mortgage holders to auction off their property.

The regulator estimated the value of potential mortgage defaulters at 48 trillion won ($43 billion) as of end-June, up 9.1 percent from 44 trillion won at the end of March. The watchdog forecast the figure may rise to nearly 60 trillion won by December.

The bulk of banks' mortgage loans in South Korea are tied to the loan-to-value ratio (LTV), a gauge used by banks to determine the amount of a home-backed loan approvable based on the price of the house. The ratio varies with cities but the average is 50 percent for Seoul and the metropolitan area, and 60 percent in rural regions.

Local banks' household loans, including home-backed and credit loans, amounted to 459.3 trillion won as of the end of August, up 1.5 trillion won from the previous month, according to the Bank of Korea. Of the figure, the mortgage lending stood at 311.6 trillion won as of end-August. (Yonhap)