Hungary to Fix Exchange Rate on Mortgages, End Eviction Ban
May 30, 2011, 9:44 AM EDTBy Edith Balazs and Zoltan Simon
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May 30 (Bloomberg) -- Hungarian banks and the government agreed to temporarily fix exchange rates on foreign-currency household mortgages and to lift a moratorium on evictions, ending months of haggling over plans to relieve borrowers from mounting debt repayments.
Lenders will fix the rate at 180 forint per Swiss franc to eliminate the fluctuation of debt servicing for households, Prime Minister Viktor Orban said at a press conference in Budapest today. Accepting the fixed exchange rate will be voluntary for borrowers, he said.
Orban is delivering on a campaign pledge to protect foreign-currency borrower who were hurt by the forint’s decline since 2008 and are unable to make payments. The measures both protect those who can’t pay back their mortgages and those who are suffering because of higher repayment obligations.
Hungarian household mortgages totaled 4.1 trillion forint ($21.9 billion) at the end of March, of which 63 percent were denominated in foreign currencies, according to central bank data. Over 100,000 such mortgages are overdue.
“Indebted families have become the victims of the previous era and found themselves in a world of speculation against their will,” Orban said.
The forint has weakened 12.5 percent against the Alpine currency over the past year, reaching a record-low 226.4 forint per franc in September. It has lost 6.6 percent against the franc this month alone, the biggest slump since November, trading at 220.7 in Budapest. Most franc-denominated mortgages were registered when the forint traded at 160 to 180 per franc.
Rate Cap
Under the agreement, the exchange rate cap will be 250 forint per euro and 200 forint per 100 Japanese yen, Economy Minister Gyorgy Matolcsy said at the same press conference.
Swiss franc-denominated mortgages accounted for 53 percent of the total mortgage stock, according to central bank figures. The difference between the fixed-rate payments and the actual exchange rate will be booked in a separate forint account where the debt will accumulate or disappear if better exchange rates emerge. Banks will pay for a state guarantee on these loans.
Debtors will have to start repaying the difference as of January 2015 at a set interest rate, said Mihaly Patai, the head of the Banking Association.
The government will lift a moratorium on evictions after the July 1 deadline and agreed with lenders to set a quarterly quota on the auction of foreclosed properties.
State-Owned Homes
In the first phase from July 1 to Oct. 1, banks will be allowed to sell foreclosed properties that are worth over 30 million forint and carry a mortgage of 20 million forint, Matolcsy said. In the fourth quarter, the quota will be 3 percent of all foreclosed homes, rising to 4 percent in 2013 and to 5 percent in 2014, according to the minister.
Banks will sell the foreclosed assets at 35 percent to 55 percent of the market value when the mortgage was registered, depending on their geographic location, Patai said.
The government will set up a national asset manager that will take over the properties of non-paying debtors who will continue to rent their homes from the state. Families agreeing to move to a smaller home will be entitled to a state subsidy on the interest rate of their mortgages for five years. The asset manager will also launch a greenfield homebuilding program for those who lose their homes, according to Orban.
Apart from OTP Bank Nyrt., the country’s largest lender, Hungary’s financial industry is dominated by foreign-owned banks including the units of KBC Groep NV, Bayerische Landesbank, Erste Group Bank AG, Intesa Sanpaolo SpA, Raiffeisen Bank International AG and UniCredit SpA.
Hungary will end a ban on euro-based mortgages and these loans will become available for those who have euro-based income of at least 15 times the current minimum wage, Orban said.
--Editors: Zoe Schneeweiss, Douglas Lytle
To contact the reporters on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net; Zoltan Simon in Budapest at zsimon@bloomberg.net
To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net; Balazs Penz at bpenz@bloomberg.net
