Pension funds in Iceland!
Government Lending / Mortgages / Bankruptcy / Property Management
ILS – The Housing Financing Fund.
Íbúðalánasjóður (ILS) is a government funded lending institute also known as The Housing Financing Fund (ILS). After the big financial crash in 2008 many families have had to leave their properties because the mortgage on their properties are inflation indexed. After the crash 2008 we saw such an inflation increase that in less than 2 years many families saw their mortgages increase around 50% leaving their property up-side-down (up-side-down is referring to when a property cannot be sold for more that the mortgage current value).
The government then tried to step in and put a temporary new law/solution in play. Many families could no longer pay their mortgage payments, so this law was a temporary solution for families to be able to freeze their mortgage payments for a certain time period, usually around 3-5 years, this is to give the family a change to get better jobs or somehow have more money available at the end of the allowed time frame. This was of course just a way to postpone what was inevitable.
Two to three years after the crash, the government changed the law regarding bankruptcy as well, from a 5 year probation down to a 2 year probation, giving people a change to file bankruptcy and starting over, giving them a chance to start buying again in two years from bankruptcy. By declaring bankruptcy you move the responsibility (mortgage payments) of their hands and onto the unfortunate persons that signed as a guarantor originally, usually family or friends.
I know this will be hard to believe, but in Iceland debts are rarely lost to banks or housing funds, because we allow mortgage with collateral in peoples personal social security numbers, not just the property itself. That means if a person can no longer pay the mortgage payment he/she is evicted by the bank or ILS. Then the property is auctioned off and what ever remains from the difference of the auction price and the mortgage is still owed by the former owner of that property. Yes this is true! The only solution for that person to declare themselves bankrupt, but that does not solve the problem, only for that person, because then the guarantor of the mortgage becomes the new happy owner of the old mortgage without any property. He/she (the guarantor) is now responsible to pay back the mortgage which, by the way, is still being indexed every month and keeps growing (depending on how many payment are left of the mortgage, see “Inflation and indexation in Iceland” for more details on mortgage growth).
Why are we seeing the banks and ILS repossessing so many properties and holding on to them and not selling them right away?
It is because of the mortgage inflation indexation. The foreclosed properties are now being sold on open market for more that they are actually worth and therefore they are not being bought.
How is ILS solve this this issue of holding on to property?
ILS founded a new corporation (LLC), Klettur ehf. (560508-0690) in the year 2008. This company is 100% owned by ILS. Klettur is run by non affiliated members according to ILS. Klettur ehf, currently has 450 properties to manage and rent out, these properties used to be owned by ILS but were transfered into Klettur ehf, 35% booked as capital startup and 65% of the value lent to Klettur ehf at normal mortgage rates ( inflation indexed).
This is the statement made by ILS in it’s yearly report:
Lögbundinn tilgangur sjóðsins er að stuðla að því með lánveitingum og skipulagi húsnæðismála að landsmenn geti búið við öryggi og jafnrétti í húsnæðismálum og að fjármunum verði sérstaklega varið til þess að auka möguleika fólks til að eignast og leigja húsnæði á viðráðanlegum kjörum.
Translation: Legal purpose of ILS is to ensure, by providing mortgages and property management, that all Icelander’s can live in a safe environment (financial safety) and equality regarding housing and that the funds financial power will be used to increase the possibilities for families to own or rent properties at affordable prices.
I will not go into specific cases here, but I have heard and know of many situations were renters have been forced to move else, after ILS took over management (after foreclosure on the property). The rent has been almost doubled in some cases within one year after the ILS new property management took over the property.