Housing Fund Woes Deepen

Ministry of Construction and Transportation data on the management of the National Housing Fund released Wednesday shows that the fund's losses will explode this year to more than 1 trillion won ($773 million).

The fund recorded a net loss of 400 billion won last year.

The ministry said that the fund, which is overseen by the ministry, plans to provide nearly 1.3 trillion won in capital to the Korea Housing Guarantee Corporation. The corporation is run jointly by the government and the private sector and guarantees the completion of construction of residential units partially prepaid by prospective buyers.

Because the state-run corporation is already in dire straits, with over 1.1 trillion won in accumulated losses cutting into its capital, up to 770 billion won in new capital is expected to be written off immediately.

The ministry sought to cut the corporation's debts by asking its creditors to take equity interests in return late last year, but the proposal was rejected by the creditors.

Another 40 billion won of the capital from the housing fund is expected to be used to make interest payments on loans taken out by the guarantee corporation from other national funds.

The combined 1 trillion won in losses of the housing fund will mean a dramatic deterioration of its financial condition. Its total capital will be reduced from 4.3 trillion won as of the end of last year to 3.35 trillion won. The losses will also push the agency's debt equity ratio from 859 percent to 1,275 percent. The housing fund, which provides housing loans to lower-income families, is also scheduled to lower its loan rate by an average of 0.85 percentage point. That will also cut the fund's interest income by approximately 192 billion won.

Another 70.2 billion won in losses are expected when that sum is moved to the corporation's allowance for bad debts. Those bad debts, in turn, were the result of loans made to contractors that were declared bankrupt.

A critical consideration in the fund's weakening finances is its lopsided interest rate structure. While it has lowered loan rates, the fund has not found a way to increase the interest revenues from its operations.

The interest expense projected by the housing fund for this year is 2.6 trillion won; that is at least 44 billion won more than its interest income.

by Shin Hye-0kyung