The Korea Housing Finance Corporation (HF) will directly take over and manage reverse mortgage claims expected to incur losses starting next year. The move is expected to reduce cost burdens for subscribers by applying lower interest rates than banks, while shrinking HF’s subrogation payment losses.
According to the financial industry Friday, HF has decided to directly take over claims in the first quarter each year for contracts in which the reverse mortgage loan balance exceeds the housing price. The corporation recently completed revisions to related regulations. The measure targets contracts in which the loan balance surpassed the value of the collateral home as of the end of the previous year, with the first acquisition review scheduled for the first quarter of next year.
HF decided to directly take over loss-making claims in order to reduce losses. A reverse mortgage is a product in which elderly people pledge their homes as collateral, continue living in them, and receive monthly pension payments. Under the structure, financial institutions such as banks extend loans to subscribers in the form of monthly payments, which HF guarantees. Monthly payments continue even after a subscriber’s loan balance exceeds the collateral home’s price, and if the loan cannot be recovered even after the collateral home is later disposed of, HF makes a subrogation payment to the financial institution.
HF believes that by taking over claims for which losses have been confirmed, it can apply lower interest rates than banks and ease the pace of loan balance growth. This would both reduce subrogation payment losses and ease subscribers’ interest burdens.
The measure is also a follow-up to an audit by the Board of Audit and Inspection. In an audit report on HF last August, the board noted that “for high-risk contracts where subrogation payment losses are all but certain, having HF take over the claims and pay the pension directly could help secure the soundness of the reverse mortgage account.”
The system improvement is estimated to reduce subrogation payment losses by more than 10 billion won. The Board of Audit and Inspection calculated that subrogation payment losses would decrease by 9.5 billion to 12.7 billion won based on 2024 figures. However, securing funds to take over loss-making claims is cited as a variable. “We are still at a stage before grasping the scale of the target claims,” an HF official said. “The acquisition scale will be determined by comprehensively considering the budget, fund management returns and other factors.”
