The Citizens' Coalition for Economic Justice (CCEJ) filed a public audit request with the Board of Audit and Inspection on the 6th against the Housing and Urban Guarantee Corporation (HUG). HUG provides guarantee insurance for the return of deposits for dwellings rented under lease agreements and is reportedly purchasing dwellings that have gone to auction due to lease accidents at prices higher than usual. CCEJ claims that taxpayer money is being wasted in this process, and that there are indications of HUG engaging in accounting fraud.
On the same day, CCEJ held a press conference in front of the Board of Audit and Inspection in Jongno District, urging the board to thoroughly investigate allegations that "HUG is indiscriminately issuing return guarantees for dwellings and that the high prices of auctioned dwellings and self-bidding could be abused for accounting fraud."
The housing rental deposit return guarantee insurance is a type of insurance that compensates for the deposit when the homeowner cannot return the deposit paid by the tenant. According to CCEJ, the lease deposits for dwellings covered by HUG's return guarantee insurance are at about 90% of the house price, significantly exceeding the usual level of 60-70%. CCEJ argues that this is the result of HUG issuing excessive return guarantees without properly assessing the risk of accidents.
CCEJ explains that some homeowners have misused HUG's return guarantee as a means of lease fraud. They reportedly rent newly built villas to tenants while obtaining loans of up to 80% of the rental deposit using HUG's return guarantee system. Tenants believe they can get their deposits back through the return guarantee and sign lease contracts. CCEJ noted that "in effect, the return guarantee compensation from HUG directly ends up in the pockets of lease scammers."
CCEJ explains that this process leads to high rental prices. Jang Jeong-hun, chairman of the Land and Housing Committee, said, "High rental prices inflate house prices and increase the risks of lease fraud for tenants who cannot repay their deposits."
At the same time, CCEJ raised suspicions that homeowners purchased dwellings at high prices for which they could not return the deposits. The typical auction winning bid ratio for dwellings is around 70% of the appraised value, but HUG reportedly acquires these at about 80%. HUG has also directly bid for dwellings that it compensated for the deposits that the homeowners failed to return.
HUG began directly bidding for dwellings where lease guarantee accidents occurred from May of last year. An analysis by CCEJ of 2,792 dwellings auctioned since May of last year found that 1,242 cases (44%) were instances of HUG's 'direct bidding.' There were fewer bidders than in other bidding cases, and many of the bids were conducted solely by HUG. The winning bid price for houses directly bid on by HUG was an average of 83% of the appraised value, compared to 73% for regular auctions.
Kim Seong-dal, secretary-general of CCEJ, stated, "There are suspicions that HUG includes the amounts from their high direct bids in the recovery rate of guarantees to make it appear as if the loss rate is lower." This allegation claims that HUG enhances the asset value of the houses acquired under the name of the "Reliable Rental Business" by supplying them for rent at prices lower than the market rate.
HUG stated that CCEJ's claims are based on a misunderstanding of the facts. HUG asserted that they do not indiscriminately issue guarantee insurance but rather assess and issue according to their own standards, noting that, based on past statistics, the rental rates are determined by the housing market situation rather than the guarantee insurance. A representative from HUG commented on the high winning bid ratios in auctions, saying, "The houses acquired for supply through the Reliable Rental Business focus on newly built houses within 15 years in the metropolitan area, which inevitably results in a higher winning bid ratio compared to the average that includes older houses or those outside the metropolitan area."