Home protection action plan, helping foreign currency borrowers
10 Years of Civil Governance - Part 14
The topic of social security is introduced by the Institute of Perspectives as follows:
“In the National Cooperation Program, family policy has become more and more important in the field of social security, but at the same time many other dimensions have received attention. Following the change of government in 2010, the most important and urgent program item was to keep credit and rent debtors under cover. The cessation of foreign currency loans in 2010, which are a source of much trouble, was an important step towards ensuring long-term social security. As part of the Home Protection Action Plan, the National Asset Management Program was established in 2012, which saved 36,000 families in 7 years and allowed for the discounted repurchase of homes previously seized by banks. Within the framework of the same action, foreign currency-based mortgage loans were converted into HUF in 2014, and non-mortgage loans in 2015. ”
In 2003, the left-liberal Medgyessy government abolished preferential state-subsidized home-building loans (1). They limited and then abolished the tax credit, narrowed the credit ceiling, reduced interest rate subsidies, that is, abolished home loan discounts on the grounds that home builders are a lot to the state. In other words, high-interest forint-based housing loans stemming from insufficient monetary policy remained. The Medgyessy and Gyurcsány governments gave the green light to foreign currency loans.
The designation of a foreign currency-based loan would be more accurate, because neither borrowing nor repayment took place in foreign currency, only settlement, but it was built into the public consciousness in this way. Thus, a foreign currency-based loan would not have required foreign currency.
The repayment (2) took place at the current exchange rate, ie the exchange rate change posed a serious risk to both the borrower and the bank. However, it would have only meant to the bank, as the so-called Loans were hedged with 1-3 month swaps to minimize banking risk.
During the Fx swap, the Hungarian bank gave forints to the foreign bank in exchange for foreign currency. They agreed in advance what exchange rate they would exchange back in a few months. In the end, everyone pays the other’s interest and then exchanged it back.
At the end of the swap transaction, the Hungarian bank received the interest as if it had deposited the forint (ie the base rate) with the central bank, but was able to re-lend the available currency, ie it recorded a double profit.
At that time, the central bank base rate was ruthlessly high (8-10%, now 0.6%), so the bank could only lend at a higher interest rate, which is nonsense. In other words, the bank rather paid the franc's 1% interest rate and lent the amount below the central bank base rate in a few percent in HUF terms.
If the exchange rate had not gone down, everyone would have done well. But he flew away like a little bird. Incidentally, the EU and the then HFSA also warned about the danger several times.
It is often asked why only lump sum redemption was allowed by the state. Because the exchange rate of the Swiss franc rose from HUF 160 to HUF 240 until the redemption. The banking system would not have been able to redeem all the remaining installments.
Those who lost their homes were given the opportunity, thanks to Nemzeti Eszközkezelő Zrt., To buy back their homes at a discount, which was used by more than 30,000 families.
The remaining loan was translated into HUF (4) at a given exchange rate and low interest rates. As a result, foreign currency loans were derecognised by 2015 (5).
In many places, it can be said that forint-based housing loans have fallen in the same way as foreign currency-based loans. This is refuted by the Portfolio (6), as the share of overdue foreign currency-based housing loans is at least 2x as high as that of forint-based housing loans. And then we haven’t talked about free-use foreign exchange vs. on HUF loans.