Mortgage relief in the works for struggling homeowners

The Financial Services Agency (FSA) and the Japanese Banker’s Association are looking at introducing special measures to provide reductions or exemptions in home loan repayments to those struggling from a loss in income as a result of the coronavirus pandemic. This will provide a much-needed safety net for borrowers.

Back in April, the FSA requested that banks consider extending loan repayment periods for distressed borrowers. The Japan Housing Finance Agency (JHF) responded by providing a maximum loan term extension of 15 years, which would reduce monthly repayments, as well as an interest-only repayment option for eligible customers. The JHF had received 200 inquiries to their loan support hotline in March. In April they received 1,200 inquiries. Since May, they have been granting around 1,000 of these loan extension applications each month, with the number peaking close to 1,500 in June. According to the FSA, banks nationwide had received over 13,000 applications from borrowers looking to modify their mortgage as of the end of June.

Special debt consolidation measures, typically used in times of natural disaster, could be introduced by the end of the year. Debt relief under the Disaster Relief Act has only been granted in 498 cases to date. Borrowers will need to consult with their bank and decide on a course of action. That may include extending the repayment schedule or even selling the mortgaged property. The support measures may also provide free third-party advice from lawyers and accountants.

Debt consolidation is preferred over personal bankruptcy. Bankruptcy results in being registered on a credit blacklist. It also limits the consumer to no more than 990,000 Yen in savings. The upper limit for savings under a debt consolidation plan is 5 million Yen. Japan sees an average of 70,000 personal bankruptcies each year.

Japan’s unemployment rate was 2.8% in June, a 0.1 point improvement from May, although job losses have been high in the service industry.

Sources:
The Nikkei Shimbun, August 7, 2020.
The Tokyo Shimbun, August 7, 2020.
Toyo Keizai, July 16, 2020.

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