You call that a meltdown?

Finance minister Shizuka Kamei has stopped giving lip service to the idea of a moratorium for housing loan defaulters. Could it have anything to do with the fact that back in the early 90s, when the housing policy that led to all the current foreclosures, he was in the Miyazawa cabinet and was instrumental in bringing it about? Probably not. Kamei sort of prides himself on the way he shoots from the hip.


What isn’t discussed that much is that foreclosures in Japan have outstripped those in the U.S. caused by the subprime fiasco. In July of this year there were 7,229 properties in Japan put up for auction becaused of defaults on loans, a 70 percent increased over July of 2008.


Chickens coming home to roost and all that. When Miyazawa enacted the Yutori Shokan Seido (Relaxed Payback System) to boost the housing market, he did it for the ostensible purpose of making it possible for everyone, even low-income earners, to own their own homes, which was the same ostensible reason for the subprime scheme in the US. Of course, the real reason was to boost the housing and banking industries. In any event, people who took out loans under the scheme had lower than normal interest rates for five to ten years, after which interest rates, and as a result monthly payments, increased, usually without the borrower knowing about it because, as in the U.S., banks and the government housing loan support entity, didn’t explain the loan structure very effectively.


No matter, because there have been two bubble-related recessions in the meantime, which means mortgage payments increased while wages have dropped or, in many cases, vanished. The balance owed on housing loans right now comes to ¥7.36 trillion, of which ¥1.31 trillion is the risk management credit balance. That translates into a 17.76 percent foreclosure rate, which is actually higher than the American foreclosure rate in 2008–17.31 percent. The thing is, the US has since corrected its subprime practices, while Japan keeps on with its yutori scheme, now called the Flat 35 plan.

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