Continued Blocking of Mortgage Loan Regulation Evasion Using Private Lenders

Financial Supervisory Service Announces Extension of Administrative Guidance on Mortgage-Backed Pledge Loans for Savings Banks and Credit Finance Companies

[Asia Economy Reporter Kwangho Lee] Financial authorities will continue to block cases this year where some savings banks and specialized credit finance companies circumvent housing mortgage loan regulations by using loan sharks.

According to the financial sector on the 7th, the Financial Supervisory Service recently announced the extension of the administrative guidance period for savings banks and credit finance companies regarding the "Risk Management Standards for Housing Mortgage Pledge Loans, etc."

A mortgage pledge refers to a situation where an individual obtains a real estate secured loan from a loan shark, with a mortgage established on the property, and the loan shark then uses this mortgage as collateral to obtain another loan from a bank.

Loan sharks exploit the fact that loan regulations such as the Loan-to-Value ratio (LTV) do not apply when handling housing mortgage loans, making this a form of illicit lending.

In fact, in 2020, some savings banks and credit finance companies issued loans exceeding the LTV limits applied to financial companies by using this method when dealing with loan sharks, which became problematic.

Since September 2 of the same year, the Financial Supervisory Service has taken administrative guidance measures to apply loan regulations such as LTV limits to housing mortgage pledge loans by savings banks and credit finance companies as well.

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