Loan Sharks Also Tighten Mortgage Loans... Financial Supervisory Service Applies LTV to Savings Banks and Credit Card Companies

Financial Supervisory Service to Conduct Thematic Inspection Next Month on Financial Companies' Compliance with Housing Loan Regulations
Inclusion of Credit Loans in DSR Calculation and Use of Loan Funds for Housing Purchase

Yoon Seok-heon, Governor of the Financial Supervisory Service, is attending the '3rd Real Estate Market Inspection Meeting of Related Ministers' held at the Government Seoul Office in Jongno-gu, Seoul on the 19th. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Jo Gang-wook] Cases have been detected where some savings banks and specialized credit finance companies (SCFCs) circumvented housing mortgage loan regulations through loan sharks. Accordingly, the Financial Supervisory Service (FSS) decided to apply housing mortgage loan regulations, including LTV limits, to indirect loans through loan sharks by savings banks and SCFCs.

On the 26th, the FSS announced this policy at a joint briefing on the investigation results of the task force responding to illegal activities in the real estate market, held at the Government Seoul Office with the Ministry of Land, Infrastructure and Transport and the National Police Agency.

The FSS revealed that the investigation found cases where some savings banks and SCFCs set loan sharks' housing mortgage-backed loan claims as collateral (pledge) and issued loans to loan sharks exceeding the LTV limits applied to financial companies. It was explained that this loan exploited the fact that loan sharks were not subject to LTV and other loan regulations when handling housing mortgage loans. As of the end of June this year, the outstanding loan balance of such loans was identified as 432.3 billion KRW for savings banks and 598 billion KRW for SCFCs.

An FSS official said, "In cases where some savings banks and SCFCs set loan sharks' housing mortgage-backed loan claims as collateral (pledge) and issued loans to loan sharks," adding, "Since loan sharks are not subject to LTV and other regulations when handling housing mortgage loans, it was confirmed that savings banks and SCFCs issued high-LTV loans exceeding the LTV limits applied to financial companies through loan sharks."

The FSS plans to issue administrative guidance from the 2nd of next month to apply loan regulations, including LTV limits, to loans secured by housing mortgage-backed loan claims of savings banks and SCFCs. Currently, in speculative areas and speculative overheating districts, housing purchase loans secured by apartments valued over 1.5 billion KRW are not issued. For housing mortgage loans on apartments valued over 900 million KRW and up to 1.5 billion KRW, an LTV of 40% applies (20% for the portion exceeding 900 million KRW). In regulated areas, for apartments valued over 900 million KRW, 50% applies to the portion up to 900 million KRW, and 30% applies to the portion exceeding 900 million KRW.

The FSS will also conduct a thematic inspection next month on the overall compliance with housing mortgage loan regulations by financial companies. The inspection will focus on whether credit loans are properly reflected in the current Debt Service Ratio (DSR) calculation and whether individual business owners and corporations are using loans for housing purchase purposes.

Especially for sectors with many financial companies subject to inspection, the FSS plans to verify the inspection results through an internal audit council jointly operated by the FSS and financial companies, allowing financial companies to autonomously check regulatory compliance.

An FSS official explained, "Recently, 53 mutual finance cooperatives self-detected violations such as exceeding LTV limits, issuing housing purchase loans in speculative areas to multi-homeowners, and purchasing additional houses after taking out living stabilization loans, and took measures such as loan recovery."

This content was produced with the assistance of AI translation services.