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The pitfalls of forex-based mortgages

September 5th, 2013

A liberal analyst says the greatest problem Fidesz faces in the upcoming campaign is how to handle hundreds of thousands of voters with forex mortgages who can no longer be won over with expressions of sympathy and solidarity. A left-leaning commentator disagrees and foresees further verbal manoeuvring to appease angry mortgage holders.

The sudden plunge of the national currency in the wake of the economic crisis in 2008 put considerable strain on forex mortgage holders. Their inability to pay soon ballooned into a threat to the national economy – in 2010 the sum of forex loans (including households, enterprises, local councils and the budget) amounted to  28 per cent of GDP. The government put a quota on foreclosures of defaulted mortgages, banned evictions in wintertime, ordered banks to accept pay-offs at a fixed (lower) exchange rate in 2012 (a one-off opportunity) and finally introduced a loan construction whereby debtors pay fixed monthly instalments, with charges resulting from exchange rate fluctuations collected on a separate account with the interest taken care of by the budget. Nevertheless, about two hundred thousand families are still struggling to pay their monthly instalments on forex loans, 16 per cent of whom are in arrears exceeding 90 days – the limit imposed by banks before foreclosure. PM Viktor Orbán and Fidesz spokespersons have held several meetings with banks during the last two years, finally promising a solution to the forex mortgage problem by converting all such loans to Forint-based accounts. Debtor organizations are becoming impatient however, and have held several demonstrations – among other places, in front of the Prime Minister’s home. The demonstrations have been peaceful but this week a group of debtors started a hunger strike at Viktor Orbán’s door. (See BudaPost August 28 and 29 .)

In its analysis of the mortgage crisis, Policy Agenda, a left-leaning think tank notes that forex mortgages have become a focus of public opinion in recent months and predicts that the issue will haunt the election campaign. The author suggests, however, that the government has little room to manoeuvre. The tactic of blaming third parties such as former governments and banks is insufficient to pacify struggling debtors who want to see swift action and a significant reduction of their burdens. The plan to phase out forex mortgages in four years, therefore, argues the analyst, is not viable as the government faces general elections in the spring of 2014.  Any move to ease the burden of forex debtors might also antagonise other families who hold forint-denominated loans.  Even if the government forces the banks to accept the costs of a conversion, families in arrears will not be helped.

In Népszabadság, Iván Várkonyi suspects a pre-election spending spree, with a further reduction in utility prices and “some gifts to families with children”. Várkonyi thinks that in tackling forex mortgages the government will continue to lash out at banks while assuring struggling families of government support. Acting on such promises would cost too much, however, and might anger other debtors who hold forint-based loans. The author reminds readers of previous “campaign ideas by successive left- and right-wing governments” including free use of public transport by citizens above 65 in 1998, generous state support to young couples to acquire their first home in 2002 and a reduction of VAT in 2006. He accuses the government of corruption, bad policies and inefficient bureaucratic practices and believes this is the reason why its hands are tied. Nevertheless, he concludes, campaign spending is inevitable, “whatever it takes”.

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