Certain banks have decided they are going to apply graduated interest rates on persons owning two homes. When someone who has a home equity loan gets another loan on another home, they want to apply an added interest rate of 0.2 percentage points. Banks have been working hard to make it easier to get home loans than corporate loans, and by doing so have bankrolled speculative real estate investment. It makes the expression "banks are the veins of industry" meaningless. This move would be a welcome development if it were a sign that loan practices are about to be changed for the better.
Unfortunately it would be hard to say that is going to be the case with 0.2 points. That can only be interpreted as nothing more than going through the motions because of the disapproving eyes of the financial supervisory authorities and public opinion. One wants to ask banks if they really think that kind of rate will be effective. The Korea Housing Finance Corporation applies 1 percent points when someone with a mortgage loan has a second home that is not sold off within a year. That, too, of course, is better than nothing. But if action is going to be taken it should be done right. What will happen when the owners of multiple homes, people with high risk for having high added interest rates, turn and go to other banks? It would not be so embarrassing to have to look at if they at least did not say that they are acting to "contribute to the stabilization of the housing market." You would want to give banks more credit if they instead had chosen a system that includes not only examination of mortgages when someone has more than two homes but also how easily he will be able to pay his loan off given his income.
One of the basic tasks of a bank is to be prepared for insolvency. They need to stop looking out for what certain other entities will think and start being better at risk management on their own. They cannot become first-rate financial companies if they think it is a borrower's business whether he can pay his loan off or not since they can always sell off the collateral if he cannot. Fluctuating rates currently account for a record 87.1 percent of home loans. Most are therefore at risk should the bubble pop on the real estate market or if interest rates rise significantly. The people who would suffer first and foremost in such a situation are those who were given loans that are excessive in light of their incomes.
The Hankyoreh, 30 June 2005.
[Translations by Seoul Selection (PMS)]
[Editorial] Banks 'Pretending' About Multiple Home Owners |
