HFF´s Mortgage Restructuring
First Aid and Permanent Solutions
A few basic facts about HFF
• A government institution, operating according
to the Housing Act No. 44/1998
• Primary task to provide loans to individuals,
municipalities, companies and nongovernmental organizations to acquire private
homes
• Financially independent, not a part of the
State budget
The Administrative Procedure Act
•
•
•
•
•
Equality - same rules for everyone
Best available option in each case
Information regarding rights and options
Speedy handling of cases
Clients are entitled to present their views
before final decisions are made
Evolution of Housing Mortgage Lending
Government
The principal
housing policy
aim of successive
Icelandic
Governments for
the past 50 years
has been to
encourage private
home ownership
Pre-1986
 Government provides assistance to private home buyers through provision of loans on
preferential terms or other assistance
Pension Funds
1986
 Pension funds invest in Government bonds
 Income from the bonds is re-lent to private home buyers by the State Housing Board
(SHB)
 The SHB also borrows straight from the pension funds
Bond Swap System
1989
 Homeowners apply for a mortgage bond, secured by the value of their house
 SHB buys this bond from the homeowner and pays for it by issuing a Housing Bond
 Rate of interest is set at the point when the SHB sells the Housing Bond to the market
Housing Financing Fund (HFF)
HFF has been
mandated with
managing and
implementing
housing policy
since 1999
1999
2004
 HFF is formed in accordance with the Housing Act No. 44/1998, combining the SHB,
the State Building Fund and the Workers’ Building Fund
HFF Bonds
 As of 1 July 2004, HFF issued a new type of bonds (HFF bonds).
 The new bond structure made the system more simplified and internationalised
Lending 2004 – 2009, HFF and Banks
Terms and Conditions on HFF Loans
Exclusively for buying and building homes
•
•
•
•
Maximum loan amount currently ISK 20 million
Loan periods, 20, 30 or 40 years
Loan to value ratio 80 %
HFF loan and existing loan on property must not
exceed the maximum amount
HFF’s Market Share
•
HFF´s market share of mortgages has decreased from 79% at the end of year 2003 to
approximately 52% in the third quarter 2009
• The banking sector’s market share is 34% and the pension funds is with 14%
share
Source: Central Bank of Iceland and HFF
HFF’s Debt Collection Process
Reminder
• 30 days after due date
Final Notice
• 4,5 months after due date
Enforced Auction
• Handled by County Magistrate
• If HFF´s is highest bidder, the property is subsequently sold on the
market
Remaining debt
• If amount received at auction does not cover the debt
• The debtor is liable for the balance but no further debt collection takes
place
• Balance can be written off after 5 years if debtor cannot pay
Defaulted payments
Despite its conservative lending policy HFF has
experienced a considerable increase in defaulted
payments since the crisis
Financial difficulties – HFF solutions
since 1994
Partial Payment Plan:
• Maturity up to 18 months
Refinancing defaulted payments:
• New loan in order to pay defaulted payments
• Maturity up to 30 years
• Interest rate same as on defaulted loan
Payment suspension:
• Partial: Customer only pays interest and indexation on interest
• Total: No payments during suspension period
Extended maturity of mortgage loan
• Up to 70 years
Payment difficulty - applications
How have we succeeded so far
- traditional measures
Payment postponement;
• Long maturity, low interest Debt put on hold while
customer pays short term high interest debt
• Interest and indexation on capital accumulated
during postponement period
• No debt cancellation
Amendments on HFF rules due to
Economic situation
Payment suspension for those unable to sell their previous
property
• Second property purchased after July 2006
• Mortgage ratio at end of suspension <100%
Debt collection - changes
• Grace period – before legal debt collection increased to 4.5
months
• Enforced auction cancelled if 1/3 defaulted payment is paid
• Extra consideration to judgment debtors - 3 months
Amendments on Housing Act
November 2008 Amendments on Housing Act
• HFF granted permission to lease apartments acquired through
Auction
• HFF granted permission to increase maturity of mortgages for
defaulted payments up to 30 years
March 2009 Changes in Procedures
• Increased obligation of county magistrates to provide information
to debtors.
• Grants a debtor a right to postpone enforced auction on his
property if he resides there or his family reside there
Amendments on Housing Act and
other legislation
November 2008 Bill on Payment Detainment
• Payment Detainment index published
• Debtor pays according to the new index
• Detained sum transferred to adjustment account – added to
loan capital and paid up after the loan´s maturity
Changed in October 2009
• Default for all mortgages held by individuals unless customer
declines
• Almost 50% of HFF customers have declined
First Aid and permanent solutions
The first measures taken by the government after the collapse of
the banking sector aimed at providing breathing space
• Extensions of various procedural limits
• Payment postponement
• HFF rules on Mortgage restructuring applied to all financial
institutions
The most resent measures – Payment adjustment and debt
adjustment
Permanent solutions?
Temporary Payment Adjustment on Mortgages
• Payments adjusted to debtor´s payment ability.
• Debts that exceed the value of the collateral will be cancelled after the
period of the payment adjustment plan (3 years)
Debt Adjustment (October 2009)
• Involves changing terms of mortgages and other debt and cancelling
debts that permanently exceed the payment ability
• Contract between debtor and creditors – aimed at maximizing both
parties gain of avoiding unnecessary cost and trouble by writing off bad
debt