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MNB report says stock of delinquent mortgages rises fivefold in two years to end of 2010

The gross stock of bank mortgages whose repayment is over 90 days past due rose to HUF 541.6 billion at the end of 2010 from HUF 97.8 billion at the end of 2008, the National Bank of Hungary (MNB) said in its financial-stability report.

The MNB report noted that the gross stock of such delinquent mortgages at financial intermediaries other than banks such as financial companies and savings cooperatives rose to HUF 119 billion at the end of 2010 from HUF 49.4 billion at the end of 2008.

The number of houses purchased with mortgages whose repayment was over 90 days past due stood at more than 90,000 at the end of 2010. Three quarters of these houses were purchased using bank loans, while one-quarter were purchased using loans from other financial enterprises, primarily financial companies and secondarily savings cooperatives. About 60%, or 54,000 of these 90,000 homes were worth between HUF 5 million and HUF 15 million, while 7%, or about 6,300, were worth more than HUF 30 million and most of the rest were worth between HUF 15 million and HUF 30 million.

The MNB report said that the government's moratorium on repossessions in effect since the beginning of 2010 has prevented banks from cleansing their mortgage portfolios. The report said that the moratorium has created uncertainty with regard to the legal enforceability of rights pertaining to real estate, thus reducing the value of such rights, and has also exercised a negative impact on the propensity of mortgage borrowers to repay their loans on schedule. The upholding of the moratorium entails higher costs for all debtors and inhibits borrowing, the MNB said, but added that lifting the moratorium could also lead to strains in the housing market, due to the portfolio problems that have been accumulated in the past. The number of repossessed properties to be sold in the market is very large compared with housing market transactions. Therefore, the flood of repossessed properties for sale could result in a sharp fall in residential property prices, the MNB said.

The government extended from April 15 until July 1 the moratorium on the eviction of delinquent mortgage-borrowers and the auction of their homes.

After full withdrawal of the moratorium market participants should follow a coordinated or regulated behavior which allows portfolio cleaning as fast as possible without causing market disturbances through the sale of properties backing non-performing loans, the MNB said.

The MNB report noted that outstanding payments on 20%-30% of mortgages in Hungary have grown to exceed the original capital of the loans due to changes in forint rates and the decline in housing prices.