Financial firms seize assets, salaries as value of loan collateral dips


A consumer group is planning a class action against financial institutions for seizing the assets and salaries of mortgage borrowers as property prices nosedive.

The Financial Consumer Agency said an estimated 1 million people who took out some 10 trillion won ($8.85 billion) in mortgage loans are “unreasonably pressured” by financial firms to pay back the loans as they near maturity and home prices plummet.

The FCA said Thursday it will find victims to file the class suit against major banks including Shinhan Bank, insurers and credit card companies by no later than the end of this year.

The proposed lawsuit is expected to be the second largest ever in Korea after the class action planned against financial firms over alleged manipulation of the interest rates of certificates of deposit.

“Passing the buck to borrowers by seizing their wages to recollect mortgage loans infringes on their rights to live and pursue happiness,” said Cho Nam-hee, head of the FCA.

“Financial firms and builders must take a certain degree of responsibility for mortgage loan losses.”

Financial companies granted loans based on their faith in future home prices and guarantees by builders.

The FCA has also lodged a complaint with the nation’s antitrust watchdog, demanding banks to revise unfair terms and conditions on mortgage loans.

The bank loan terms and conditions state that when the value of collateral drops, borrowers must offer collateral deemed acceptable by the bank at the bank’s demand.

Claiming that this is clearly unfair and has so far troubled borrowers, the FCA urged the Fair Trade Commission to inspect financial firms and make them revise the terms.

As for the planned class suit over the suspected CD rate rigging, the FCA received about 350 cases in three days from people seeking compensation for increased borrowing costs as the benchmark rate was kept above market rates due to alleged collusion among financial firms. Nearly half of household loans are tied to the CD rate.

The FCA said it received more than 1,000 phone calls about the CD rate class suit.

The consumer group plans to receive applications for participation in the class action through the end of this month.

A growing number of mortgage borrowers are under pressure to repay debt as the sluggish property market is undercutting the value of collateral.

Home-backed lending extended by local banks reached 223.8 trillion won ($197.9 billion) as of the end of May, accounting for 27.2 percent of banks’ won-denominated loans, according to the Bank of Korea.

The nation’s financial watchdog said Wednesday that it is seeking to ease households’ repayment burden of home-backed loans as the slumping property market erodes the value of collateral.

The Financial Supervisory Service said it is studying plans to have banks convert maturing mortgages exceeding a lending limit called the loan-to-value ratio into credit loans instead of retrieving them.

The LTV ratio is one of the main tools to curb household loans by restricting the maximum amount of money that homeowners can borrow in proportion to the value of their collateral.

By Kim So-hyun (sophie@heraldcorp.com)