FSS: "Banks Extending Mortgage Loan Maturities to Increase Household Debt Will Be Cracked Down On"

Case of 50-Year Maturity Mortgage Loan Launched Without Following Procedures, Reflected in Household Loan Performance Evaluation Detected
Guidance to Immediately Correct Major Issues

Expanding the maximum maturity of mortgage loans, such as 50-year term home mortgage loans, is an important factor in increasing the total debt service ratio (DSR) limit. However, it has been revealed that most banks omitted related committee reviews while revising product regulations during the launch process.

Additionally, to prevent competition in some household loans, banks had been encouraged through consultations with financial authorities to exclude these loans from branch performance metrics. Nevertheless, some banks were found to evaluate performance proportionally to household loan achievements and link the results to personnel compensation.

On the 14th, the Financial Supervisory Service (FSS) held a meeting chaired by Deputy Director Park Chung-hyun, responsible for banking, with vice presidents of major banks handling household loans (excluding Citi, Jeju, Industrial, and Export-Import banks, totaling 16 banks). The meeting conveyed the results of on-site inspections of household loans conducted from August 24 to November 1 and discussed future improvement measures.

The FSS stated, "The inspection results revealed numerous cases of DSR regulation circumvention, such as expanding the maximum loan maturity, providing incentives to refinance credit loans into mortgage loans to increase loan limits, and linking loan performance to KPIs, focusing on loan volume expansion."

The FSS also uncovered cases where DSR circumvention methods were used as sales tactics. Banks increased loan limits by exploiting the difference in DSR application maturities between credit loans and mortgage loans and sometimes omitted DSR assessments.

The FSS said, "We will immediately guide banks to correct major issues, check the adequacy of improvements during future on-site inspections, and establish institutional safeguards to prevent recurrence of similar cases."

It added, "We are revising enforcement rules to prohibit excessively long loan maturities without reasonable grounds, considering such practices as attempts to evade DSR application. We will also reflect improvements such as ending loan regulation exceptions for refinancing with new balance COFIX products and enhancing high DSR special cases for specialized banks in cooperation with the Financial Services Commission."

Furthermore, "We will encourage voluntary improvements such as strengthening internal control procedures and refraining from using sales tactics when changing requirements that affect DSR limits, like loan maturities, and excluding household loan KPIs," it added.

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