HFF´s Mortgage RestructuringFirst Aid and Permanent Solutions

A few basic facts about HFF

• A government institution, operating according to the Housing Act No. 44/1998 • Primary task to provide loans to individuals, municipalities, companies and non- governmental organizations to acquire private homes

• Financially independent, not a part of the State budget

• Equality - same rules for everyone• Best available option in each case• Information regarding rights and options • Speedy handling of cases• Clients are entitled to present their views

before final decisions are made

The Administrative Procedure Act

Pre-1986

1986

1989

1999

2004

The principal housing policy aim of successive Icelandic Governments for the past 50 years has been to encourage private home ownership

HFF has been mandated with managing and implementing housing policy since 1999

Government Government provides assistance to private home buyers through provision of loans on

preferential terms or other assistance

Pension Funds Pension funds invest in Government bonds Income from the bonds is re-lent to private home buyers by the State Housing Board

(SHB) The SHB also borrows straight from the pension funds

Bond Swap System Homeowners apply for a mortgage bond, secured by the value of their house SHB buys this bond from the homeowner and pays for it by issuing a Housing Bond Rate of interest is set at the point when the SHB sells the Housing Bond to the market

Housing Financing Fund (HFF) HFF is formed in accordance with the Housing Act No. 44/1998, combining the SHB,

the State Building Fund and the Workers’ Building Fund

HFF Bonds As of 1 July 2004, HFF issued a new type of bonds (HFF bonds). The new bond structure made the system more simplified and internationalised

Evolution of Housing Mortgage Lending

Lending 2004 – 2009, HFF and Banks

Terms and Conditions on HFF Loans

Exclusively for buying and building homes

• Maximum loan amount currently ISK 20 million• Loan periods, 20, 30 or 40 years• Loan to value ratio 80 % • HFF loan and existing loan on property must

not exceed the maximum amount

• HFF´s market share of mortgages has decreased from 79% at the end of year 2003 to approximately 52% in the third quarter 2009

• The banking sector’s market share is 34% and the pension funds is with 14% share

Source: Central Bank of Iceland and HFF

HFF’s Market Share

Reminder • 30 days after due dateFinal Notice• 4,5 months after due date Enforced Auction• Handled by County Magistrate• If HFF´s is highest bidder, the property is subsequently sold on the

marketRemaining debt• If amount received at auction does not cover the debt• The debtor is liable for the balance but no further debt collection takes

place• Balance can be written off after 5 years if debtor cannot pay

HFF’s Debt Collection Process

Despite its conservative lending policy HFF has experienced a considerable increase in defaulted payments since the crisis

Defaulted payments

Financial difficulties – HFF solutions since 1994

Partial Payment Plan: • Maturity up to 18 monthsRefinancing defaulted payments:• New loan in order to pay defaulted payments• Maturity up to 30 years• Interest rate same as on defaulted loanPayment suspension:• Partial: Customer only pays interest and indexation on interest• Total: No payments during suspension periodExtended maturity of mortgage loan• Up to 70 years

Payment difficulty - applications

Payment postponement;• Long maturity, low interest Debt put on hold while

customer pays short term high interest debt• Interest and indexation on capital accumulated

during postponement period • No debt cancellation

How have we succeeded so far - traditional measures

Payment suspension for those unable to sell their previous property• Second property purchased after July 2006• Mortgage ratio at end of suspension <100%

Debt collection - changes• Grace period – before legal debt collection increased to 4.5

months• Enforced auction cancelled if 1/3 defaulted payment is paid• Extra consideration to judgment debtors - 3 months

Amendments on HFF rules due to Economic situation

November 2008 Amendments on Housing Act• HFF granted permission to lease apartments acquired through

Auction • HFF granted permission to increase maturity of mortgages for

defaulted payments up to 30 years

March 2009 Changes in Procedures• Increased obligation of county magistrates to provide information

to debtors. • Grants a debtor a right to postpone enforced auction on his

property if he resides there or his family reside there

Amendments on Housing Act

November 2008 Bill on Payment Detainment • Payment Detainment index published• Debtor pays according to the new index• Detained sum transferred to adjustment account – added to

loan capital and paid up after the loan´s maturity

Changed in October 2009• Default for all mortgages held by individuals unless customer

declines • Almost 50% of HFF customers have declined

Amendments on Housing Act and other legislation

The first measures taken by the government after the collapse of the banking sector aimed at providing breathing space

• Extensions of various procedural limits • Payment postponement • HFF rules on Mortgage restructuring applied to all financial

institutions

The most resent measures – Payment adjustment and debt adjustment

First Aid and permanent solutions

Temporary Payment Adjustment on Mortgages • Payments adjusted to debtor´s payment ability. • Debts that exceed the value of the collateral will be cancelled after the period of the payment adjustment plan (3 years)

Debt Adjustment (October 2009)• Involves changing terms of mortgages and other debt and cancelling debts that permanently exceed the payment ability• Contract between debtor and creditors – aimed at maximizing both parties gain of avoiding unnecessary cost and trouble by writing off bad debt

Permanent solutions?