Even President Lee Teng-hui (
But according to a high-ranking finance ministry official, Lee's apparent defense of the Minister of Finance's stance on the mortgages was unwarranted. Lee, the official said, is just repeating what Minister of Finance Paul Chiu (
The official stood behind the MOF's policy on the issue -- that the the government cannot afford to assume these mortgages -- warning that "moral hazard" would arise if the government took total responsibility.
Currently everyone is crying foul over who should pay for housing written off after last week's quake, and no-one wants to foot the bill.
The government has the cash to absorb the loss, but it argues about "moral hazard." Banks complain of being saddled with additional bad loans, saying that a debt is a debt that must be repaid. Homeowners argue, quite reasonably, that with one mortgage taking thirty years to pay off, they won't live long enough to stump up for a second one. If they borrowed money from relatives or friends to buy the house -- as is quite common -- or if they had already paid off most of the mortgage, it's then unfair if all the people with whopping 80 percent mortgages suddenly find them wiped away.
The MOF official argued that the joint proposal put forward by the ministry and Central Bank of China is the fairest. Under the plan, homeowners will be given low-interest "soft loans" to reconstruct on the condition that they do so on the original site and with their mortgage held by the same bank. This way, homeowners eventually pay back debt but without being crippled by repayments, and banks will not have to classify all mortgages as bad debt. The CBC has already established a NT$100 billion fund for this purpose.
The alternative, analysts speculate, would be for mortgagees to declare themselves bankrupt, thus forcing banks to resort to the courts to recover the collateral for the original loans. That collateral is likely now a pile of concrete and twisted rebar on a plot of land with doubtful resale potential.
The "moral hazard" that the MOF official warned of would only encourage people (and banks) to neglect earthquake prevention measures, such as insurance, he said. It was only in the week following the present quake that the insurance industry revealed that less than one percent of homeowners have earthquake insurance.
The official also questioned the figures being bandied about for potential bad loans in the aftermath of the quake. While he said the original MOF figure of NT$13 billion was probably too low, but the NT$50 billion being cited by banks was inflated to garner support for their cause. He said a figure somewhere between the two was likely to prove accurate.
He did, however, concur with the estimate that losses for credit cooperatives and credit divisions of farmers' associations would be higher than NT$20 billion.
It had been suggested that the MOF separate these credit divisions off, close them, and have them assumed by banks, he said. Alternatively, farmers' associations could close credit divisions themselves and use government aid to write off bad loans.
And as for Paul Chiu's original comments, which were taken to mean he believed that banks should take full responsibility for shouldering mortgage-related bad loans, he said that this was a misinterpretation of Chiu's comments
Chiu had originally been advised to say nothing at all, he said, but pressure from the Cabinet had forced him to make a statement.
Many bank shares again fell to their lower limits in trade yesterday, the fourth consecutive day of such falls. Banking analysts say investors are likely to remain jittery until they know which banks have been affected by the quake and to what degree.
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