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Fixed exchange rate to help distressed fx borrowers

The government "envisages" an assistance package for troubled borrowers with foreign currency-based loans that involves fixing an exchange rate "at a level somewhat more favorable than now" and providing a state guarantee on a negative balance, an update of Hungary's Structural Reform Program, dubbed the Szell Kálmán Plan, published on the government website on Friday shows.

"In the construction envisaged, the exchange rate determining the installments for foreign exchange denominated mortgage loans will be fixed...with the difference from the actual future exchange rate to be entered on a separate account where the debt may be accumulated (or even disappear if better exchange rates emerge)," according to the updated program.

The government will undertake a full guarantee for the period during which the fixed rate is in force and a 25% fallback guarantee for rest of the term of the loan.

Should the borrower default, the lending bank is to offer temporary housing aid and forgive the part of the loan that exceeds the value of the collateral used to secure the loan. The government is to offer an interest rate subsidy to investors who wish to buy such properties.

In another step, the government is to establish a National Asset Management Company to acquire the homes of "the families most in need" through debtor or creditor agreements, or in auction, and rent them to the borrowers.

Retail borrowers with Swiss franc-based mortgages -- more popular than forint mortgages before they were banned -- saw their repayments rise as the forint weakened during the crisis, prompting Hungary's previous government to introduce moratoriums on foreclosures and evictions by lenders. The moratorium has been extended several times, most recently until July 1, 2011.

Overdue payments have been seen on more than 117,000 foreign currency-denominated mortgages because of higher installments, according to the updated program.