Housing Finance Corporation Jeonse Return Guarantee, Accident and Subrogation Amounts Soar in One Year

This Year's New Loan Subrogation Amount Also 1.3 Trillion...

Amid growing instability in the real estate lease market, including jeonse fraud, the Korea Housing Finance Corporation (HF) has seen its jeonse deposit return guarantee accident amount and subrogation payment amount increase fivefold and sevenfold respectively within a year.

According to data submitted by HF to the office of Kang Min-guk, a member of the People Power Party on the National Assembly's Political Affairs Committee, the jeonse deposit return guarantee accident amount recorded by HF until August reached 55.9 billion KRW. This represents about a fivefold increase compared to the previous year (11.1 billion KRW).

The jeonse deposit return guarantee is a product where the guarantee company reimburses the tenant if the landlord fails to return the jeonse deposit without justifiable reason after the lease contract ends. Guarantee institutions such as Korea Housing & Urban Guarantee Corporation (HUG) and Seoul Guarantee Insurance (SGI) offer this product, and HF began selling the jeonse deposit return guarantee in July 2020.

With the recent nationwide spread of jeonse fraud, HF’s jeonse deposit return guarantee amount has been steadily expanding. According to data submitted by HF to the office of Yoon Han-hong, a member of the People Power Party on the National Assembly's Political Affairs Committee, HF’s jeonse deposit return guarantee amounts were 294.1 billion KRW (1,597 cases) in 2020, 1.07 trillion KRW (5,904 cases) in 2021, 3.065 trillion KRW (15,519 cases) in 2022, and 4.3871 trillion KRW (22,082 cases) as of the end of August 2023, showing a significant increase each year.

The problem is that as the use of the jeonse deposit return guarantee has surged, guarantee accidents and the resulting subrogation payments have also greatly expanded. The guarantee accident amount increased more than fivefold from 11.1 billion KRW in 2022 to 55.9 billion KRW as of the end of August this year, and the subrogation payment amount expanded more than sevenfold from 6.1 billion KRW (28 cases) to 44.4 billion KRW (211 cases) during the same period. The recovery amount of subrogation claims also rose from 600 million KRW to 6.8 billion KRW.

Subrogation payment refers to the guarantee institution paying the deposit to the creditor (tenant) on behalf of the debtor (landlord) and then exercising the right of recourse against the debtor to recover the amount. The increase in subrogation payments indicates that the number of landlords unable to return jeonse deposits to tenants is rising.

As these guarantee accidents increase, HF has requested an increase in the subrogation payment budget for next year to 700.9 billion KRW, a 111.8% increase compared to this year’s 330.9 billion KRW. HF told Kang’s office, "It is necessary to secure a stable budget reflecting the recent trend of increasing guarantee accidents and subrogation payments," adding, "Especially considering the rapidly growing supply scale of jeonse deposit return guarantees due to the spread of instability in the lease market, subrogation payments are also expected to increase significantly, making budget securing essential to respond."

Meanwhile, the Korea Credit Guarantee Fund, which mainly provides guarantees for small and medium-sized enterprises, has also seen an increase in subrogation payment amounts. From January to August this year, the total amount paid by the fund to banks on behalf of businesses unable to repay their debts reached 1.3053 trillion KRW.

The largest amount paid on behalf of small and medium-sized enterprises was 995.7 billion KRW. The subrogation payment amount for primary collateralized bond obligations (P-CBO) issued by bankrupt SMEs was 26 billion KRW. The subrogation payment amount for small business owners was 279.2 billion KRW. Additionally, 4.4 billion KRW was paid for subrogation related to refinancing guarantees for small business owners switching to low-interest loans.

Looking at the Korea Credit Guarantee Fund’s subrogation payment amounts over the past five years, it was 2.325 trillion KRW in 2018 but significantly decreased during the COVID-19 period: 1.6844 trillion KRW in 2019, 1.5188 trillion KRW in 2020, 1.4453 trillion KRW in 2021, and 1.3831 trillion KRW in 2022, showing a decline each year.

A representative from the fund stated, "We had extended loan maturities and provided interest payment deferrals for small and medium-sized enterprises and small business owners, which reduced subrogation payment amounts over the past few years," adding, "As these support measures conclude this year, we have started to see subrogation payment amounts increase again."

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