HUG's 3.2 Trillion Won Subrogation Claims for 'Debts Repaid on Behalf'...Possibility of Recovering Less Than Half

The amount actually recoverable from the 3.2 trillion won of subrogation claims held by the Housing and Urban Guarantee Corporation (HUG) is likely to be less than half.

According to data submitted by HUG to Kim Min-ki, a member of the National Assembly and chairman of the Land, Infrastructure and Transport Committee from the Democratic Party of Korea, as of June this year, the balance of "recoverable claims" (hereinafter subrogation claims) held by HUG was calculated at 3.1732 trillion won. Subrogation claims refer to claims that must be recovered after repaying creditors on behalf of defaulting debtors.

The balance, which was around 639.9 billion won in 2018, increased to 1.0013 trillion won in 2021 and 1.7735 trillion won last year, and showed a sharp rise this year as well. This is the result of a surge in HUG’s subrogation payments for returning jeonse deposits.

HUG’s subrogation payments for returning jeonse deposits to individuals were only 58.3 billion won in 2018, but jumped to 283.7 billion won in 2019 and have increased rapidly every year, reaching about 1.3353 trillion won as of June this year.

While the scale of subrogation claims is growing day by day, the amount HUG can recover from debtors is expected to be less than half. As of June this year, the "accounting subrogation claims" that HUG is estimated to be able to actually recover were calculated at 1.4075 trillion won. This is about 44.4% of the total subrogation claims (3.1732 trillion won). The remaining more than 1.7 trillion won is likely to be resolved internally by HUG.

Accounting subrogation claims are estimated based on the recovery rate according to past actual subrogation rates (experience rates), and the amount is measured based on current value rather than cost. Until last year, accounting subrogation claims were calculated based on the cost amount expected to be recoverable through collateral assets, but from January this year, the new insurance contract accounting standard, Korean International Financial Reporting Standard No. 1117 (Insurance Contracts), was applied, changing the calculation method from the past.

HUG handles unrecovered subrogation claims through write-offs, sales, equity conversions, and debt waivers. In particular, claims that appear difficult to recover are partially sold to the Korea Asset Management Corporation (KAMCO), and significant losses occur in this process.

From 2018 to June this year, HUG sold a total of 366.3 billion won worth of claims, including 356.3 billion won of subrogation claims, to KAMCO, but the actual sales proceeds were only 255 million won, resulting in an outcome virtually equivalent to a write-off.

Assemblyman Kim said, "As jeonse fraud damages increase, the cost of deposits that HUG has repaid on behalf of tenants has also risen significantly, potentially resulting in losses exceeding 1 trillion won. We must thoroughly cooperate with investigative agencies to minimize the burden of repaying malicious landlords’ debts with the public’s precious taxes, find fraud criminals, and recover the funds to the fullest extent."

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