All Mortgages in Iceland May Go to State-Run Fund

[Reboot]

Iceland Review | September 22, 2009

... homeowners are tired of waiting for solutions to lighten their debt burdens and a payment strike has been called for.

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It is currently being discussed within the Icelandic cabinet to transfer all mortgages held by the banks to the state-run Housing Financing Fund (HFF) to make it easier to offer unitary resources for debtors. Many meetings have been held to discuss the transfer of mortgages to the HFF recently and it is hoped that a strategy to that end can be presented later this week or early next week, Fréttabladid reports.

A committee comprised of the ministers of justice, social affairs and business affairs was appointed to find solutions for people in payment difficulties two months ago and a report is expected from the committee by the end of this month. Transferring mortgages to the HFF is the solution that the ministerial committee has particularly focused on recently, as it is considered to secure equality between debtors.

Any unitary actions undertaken by the banks to lighten the burden on debtors could be prevented by competition authorities, even though all of the banks in question are state-owned. Representatives of the ministerial committee have discussed this matter with the directors of the three largest banks, Íslandsbanki, Landsbanki and Kaupthing, representatives of the HFF and of the Central Bank. On Sunday, the committee met with the minister of finance.

According to Fréttabladid's sources, Minister of Social Affairs Árni Páll Árnason of the Social Democrats considers transferring the mortgages the best possible solution and ministers from the ranks of the Left-Greens are also content with it. Árnason wouldn't confirm to Fréttabladid that the execution of this idea is being worked on but said that a number of solutions were being discussed. Nothing has been decided, he stressed.

If this idea will be executed, it is likely that the HFF would simply take over the banks' bonds, like the fund has already done with the loans of various savings banks. However, the state treasury would have to provide the banks with funds in exchange, which could call for the issuing of ISK hundreds of billions' (ISK 100 billion = USD 800 million, EUR 550 million) worth of treasury bonds.

Fréttabladid points out that the implementation of the transfer of mortgages has yet to be negotiated with the banks. According to Fréttabladid, the government is eager to complete this matter before the parliament convenes in early October.

Meanwhile, homeowners are tired of waiting for solutions to lighten their debt burdens and a payment strike has been called for.