The Presidential Committee on Policy Planning has proposed that measures for victims of rental fraud be designated as a 'priority initiative', while financial authorities will begin surveying the status of priority claims set on affected dwellings nationwide starting this week. This is a preliminary measure for the establishment of a 'rental fraud bad bank' (an institution that purchases and manages non-performing assets or claims) to organize rights relationships.
According to financial authorities and the Democratic Party of Korea on the 20th, the Financial Services Commission plans to start identifying the status of priority claims and the potential scale of purchases for affected dwellings this week. This is to determine whether comprehensive rescue measures through a rental fraud bad bank are feasible.
A significant number of dwellings affected by rental fraud already have mortgages set by financial companies. If a landlord fails to repay debts such as home mortgage loans, financial companies will exercise priority collateral rights to carry out public or private auctions, and tenants will find themselves in a situation where they have to vacate their homes without properly recovering their rental deposits.
However, if the bad bank's purchase of claims results in priority creditors being replaced by public institutions rather than private financial companies, it is expected to not only increase the deposit recovery rate but also reduce the burden of forced evictions through lawsuits.
Currently, the Korea Land & Housing Corporation (LH) is purchasing affected dwellings through negotiations and auctions to support victims, but there are concerns that the pace of acquisitions is excessively slow.
By last month, LH had only purchased 1,043 dwellings, which is woefully inadequate compared to the number of victims, which amounts to over 30,000. If a rental fraud bad bank is established, it is anticipated that institutions such as the Korea Asset Management Corporation (KAMCO) will be seriously considered.
KAMCO serves as the operational agency for the 'long-term delinquent debt adjustment program (bad bank)', also responsible for the bulk purchase and disposal of debts of less than 50 million won that have been overdue for more than seven years.
Initially, the proposal to purchase priority claims through the Korea Land & Housing Corporation (LH) was mentioned, but many believe that LH, not being a specialized institution for non-performing loans, has limitations in purchasing individual claims one by one.
Finding a funding source is another challenge. The ruling party estimates that the scale of the rental fraud bad bank project will require around 1 trillion won, indicating a significant need for resources.
However, the Financial Services Commission has indicated that it will not consider the method of procurement through the financial sector, given that among the required funds of 800 billion won for the 'long-term delinquent debt adjustment program', 400 billion won has already been agreed to be shouldered by the financial sector.
It is expected that methods utilizing internal resources from KAMCO or LH will be prioritized for review. Additionally, a significant number of affected dwellings have priority claims held by institutions that purchase non-performing loans (NPLs), such as lending companies, which could also be a variable.