HFF´s Mortgage Restructuring First Aid and Permanent Solutions

A few basic facts about HFF A government institution, operating according to the Housing Act No. 44/1998 Primary task to provide loans to individuals, municipalities, companies and non- governmental organizations to acquire private homes Financially independent, not a part of the State budget

Equality - same rules for everyone Best available option in each case Information regarding rights and options Speedy handling of cases Clients are entitled to present their views before final decisions are made The Administrative Procedure Act

Pre The principal housing policy aim of successive Icelandic Governments for the past 50 years has been to encourage private home ownership HFF has been mandated with managing and implementing housing policy since 1999 Government  Government provides assistance to private home buyers through provision of loans on preferential terms or other assistance Government  Government provides assistance to private home buyers through provision of loans on preferential terms or other assistance Pension Funds  Pension funds invest in Government bonds  Income from the bonds is re-lent to private home buyers by the State Housing Board (SHB)  The SHB also borrows straight from the pension funds Pension Funds  Pension funds invest in Government bonds  Income from the bonds is re-lent to private home buyers by the State Housing Board (SHB)  The SHB also borrows straight from the pension funds Bond Swap System  Homeowners apply for a mortgage bond, secured by the value of their house  SHB buys this bond from the homeowner and pays for it by issuing a Housing Bond  Rate of interest is set at the point when the SHB sells the Housing Bond to the market Bond Swap System  Homeowners apply for a mortgage bond, secured by the value of their house  SHB buys this bond from the homeowner and pays for it by issuing a Housing Bond  Rate of interest is set at the point when the SHB sells the Housing Bond to the market Housing Financing Fund (HFF)  HFF is formed in accordance with the Housing Act No. 44/1998, combining the SHB, the State Building Fund and the Workers’ Building Fund Housing Financing Fund (HFF)  HFF is formed in accordance with the Housing Act No. 44/1998, combining the SHB, the State Building Fund and the Workers’ Building Fund HFF Bonds  As of 1 July 2004, HFF issued a new type of bonds (HFF bonds).  The new bond structure made the system more simplified and internationalised HFF Bonds  As of 1 July 2004, HFF issued a new type of bonds (HFF bonds).  The new bond structure made the system more simplified and internationalised Evolution of Housing Mortgage Lending

Lending 2004 – 2009, HFF and Banks

Terms and Conditions on HFF Loans Exclusively for buying and building homes Maximum loan amount currently ISK 20 million Loan periods, 20, 30 or 40 years Loan to value ratio 80 % HFF loan and existing loan on property must not exceed the maximum amount

HFF´s market share of mortgages has decreased from 79% at the end of year 2003 to approximately 52% in the third quarter 2009 The banking sector’s market share is 34% and the pension funds is with 14% share Source: Central Bank of Iceland and HFF HFF’s Market Share

Reminder 30 days after due date Final Notice 4,5 months after due date Enforced Auction Handled by County Magistrate If HFF´s is highest bidder, the property is subsequently sold on the market Remaining debt If amount received at auction does not cover the debt The debtor is liable for the balance but no further debt collection takes place Balance can be written off after 5 years if debtor cannot pay HFF’s Debt Collection Process

Despite its conservative lending policy HFF has experienced a considerable increase in defaulted payments since the crisis Defaulted payments

Financial difficulties – HFF solutions since 1994 Partial Payment Plan: Maturity up to 18 months Refinancing defaulted payments: New loan in order to pay defaulted payments Maturity up to 30 years Interest rate same as on defaulted loan Payment suspension: Partial: Customer only pays interest and indexation on interest Total: No payments during suspension period Extended maturity of mortgage loan Up to 70 years

Payment difficulty - applications

Payment postponement; Long maturity, low interest Debt put on hold while customer pays short term high interest debt Interest and indexation on capital accumulated during postponement period No debt cancellation How have we succeeded so far - traditional measures - traditional measures

Payment suspension for those unable to sell their previous property Second property purchased after July 2006 Mortgage ratio at end of suspension <100% Debt collection - changes Grace period – before legal debt collection increased to 4.5 months Enforced auction cancelled if 1/3 defaulted payment is paid Extra consideration to judgment debtors - 3 months Amendments on HFF rules due to Economic situation

November 2008 Amendments on Housing Act HFF granted permission to lease apartments acquired through Auction HFF granted permission to increase maturity of mortgages for defaulted payments up to 30 years March 2009 Changes in Procedures Increased obligation of county magistrates to provide information to debtors. Grants a debtor a right to postpone enforced auction on his property if he resides there or his family reside there Amendments on Housing Act

November 2008 Bill on Payment Detainment Payment Detainment index published Debtor pays according to the new index Detained sum transferred to adjustment account – added to loan capital and paid up after the loan´s maturity Changed in October 2009 Default for all mortgages held by individuals unless customer declines Almost 50% of HFF customers have declined Amendments on Housing Act and other legislation

The first measures taken by the government after the collapse of the banking sector aimed at providing breathing space Extensions of various procedural limits Payment postponement HFF rules on Mortgage restructuring applied to all financial institutions The most resent measures – Payment adjustment and debt adjustment First Aid and permanent solutions

Temporary Payment Adjustment on Mortgages Payments adjusted to debtor´s payment ability. Debts that exceed the value of the collateral will be cancelled after the period of the payment adjustment plan (3 years) Debt Adjustment (October 2009) Involves changing terms of mortgages and other debt and cancelling debts that permanently exceed the payment ability Contract between debtor and creditors – aimed at maximizing both parties gain of avoiding unnecessary cost and trouble by writing off bad debt Permanent solutions?