Yoo Byung-tae, HUG President, "Need to Realize Guarantee Fee Rates... Performance Turnaround Next Year"

"Need to Realize Guarantee Fee Rates Lower than Accident Rates"
Increased Bond Recovery and Performance Turnaround with Dundeun Jeonse

The Housing and Urban Guarantee Corporation (HUG) expects not only an improvement in financial soundness based on the decrease in subrogation payments for jeonse deposit return guarantees and self-help efforts but also an upgrade in its management evaluation rating. Additionally, it viewed the current guarantee fee rate for the jeonse deposit return guarantee as significantly low and in need of "realignment."

Yoo Byung-tae, President of the Housing and Urban Guarantee Corporation (HUG), is speaking at a luncheon meeting with reporters from the Ministry of Land, Infrastructure and Transport on the 25th. / Photo by Noh Kyung-jo

On the 25th, Yoo Byung-tae, President of HUG, stated at a luncheon meeting with reporters from the Ministry of Land, Infrastructure and Transport, "Through the Dundeun Jeonse system, there will be effects such as increased debt recovery rates and liquidity."

HUG received a 'Poor (D)' grade for two consecutive years in the public institution management evaluation this year. Last year’s net loss surged to 3.8598 trillion KRW compared to 408.7 billion KRW the previous year, negatively impacting the evaluation.

President Yoo explained, "House prices and jeonse prices peaked around June 2022 but declined simultaneously due to an economic downturn following a sharp rise in the base interest rate, leading to many guarantee incidents. Last year, about 3.5 trillion KRW was subrogated for jeonse deposit return guarantees alone, and subrogation payments for rental guarantee incidents involving individual landlords reached 1 trillion KRW, causing a sharp increase in net losses." He also noted that the newly revised accounting standard (IFRS17), which requires applying empirical loss rates, had an impact.

He added, "We expect subrogation payments to decrease in the second half of the year," and "In addition to Dundeun Jeonse, we are coming up with various ideas to increase debt recovery rates." Dundeun Jeonse is a housing program where HUG pays the deposit to tenants on behalf of landlords in cases of jeonse deposit return guarantee incidents and directly bids on auctioned existing houses to provide them to the middle class. The goal is to supply 10,000 households by next year, and it is reported that about 1,000 households have been successfully bid on so far.

Along with this, President Yoo emphasized the need to raise the guarantee fee rate for the jeonse deposit return guarantee. He said, "The guarantee fee rate is far too low compared to the incident rate," but added, "Of course, the premise is that even if the guarantee fee rate is realigned, it should not impose a burden on subscribing tenants." Currently, the guarantee fee rate for tenants is around 0.115% to 0.154% per year.

According to HUG, the guarantee fee rate has been lowered ten times since 2004. It is known that the fee rate has never been raised due to recommendations from housing-related associations and organizations that increasing the fee would transfer the burden to homebuyers. The Korea Development Institute (KDI) suggested in a report last September that "the jeonse deposit return guarantee fee rate should be realigned considering the actual loss rate and differentiated based on the landlord’s repayment ability."

President Yoo also revealed plans for self-help efforts. He said, "We will do our utmost to strengthen financial soundness through accident prevention by reinforcing the identification of insolvent businesses, expanding the dedicated debt recovery organization, and strengthening guarantee risk management," adding, "If we make self-help efforts, it will be difficult this year, but a turnaround in performance is expected next year." He further stated, "We will strive to achieve good results in management evaluations through improvements in non-quantitative areas such as integrity, increasing counseling staff, and enhancing work efficiency."

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