At the end of March 2013, the home loan moratorium expired, creating potential for a mortgage crisis in Japan. Households struggling to make repayments are beginning to panic as forecasts suggest interest rates are set to rise.
While banks are not likely to immediately foreclose on all late-payers, there is a chance we will see an increase in bank foreclosures on well-located properties in the later half of 2013 if land prices increase.
If the borrower is three months behind in repayments, the bank will send a demand note. At that point the loan guarantor company will begin paying some of the debt to the bank, but when the guarantor company ceases payments the bank will demand the borrower to pay the remaining amount in full. If the borrower cannot come up with the funds, foreclosure proceedings will begin.
At a foreclosure auction, a property is generally sold at 60 ~ 70% of its normal market value. There are many cases where the property is sold for less than the outstanding mortgage. In this situation the borrower is still liable to pay the remaining debt, even though they have lost their house. In order to wipe out the remaining debt, some borrowers choose to declare themselves bankrupt.
About the debt moratorium:
The moratorium, sometimes referred to as a mortgage repayment deferment scheme, was introduced at the end of 2009. The scheme was introduced to help restructure home loans for borrowers who were having difficulty meeting their repayments. Restructure options included temporarily reducing repayments and reducing interest rates, although these conditions would only last until March 2013.
After the moratorium was introduced, as many as 15,000 borrowers were saved from foreclosure each year. The number of foreclosed properties in 2010 was 51,746, down 7,000 from 2009. It is possible we may now see an additional 45,000 foreclosures in the next three years unless new relief measures are introduced.
Source: The Shukan Post, April 19, 2013.