According to the land ministry, in 2009 60,000 properties were put on the auction block due to failure to meet mortgage payments. That’s a 30 percent increase over the number of auctions in 2008. Meanwhile, 800,000 new homes, including condos, were built in 2009.
The Asahi Shimbun yesterday ran a story about two such delinquencies that happened to neighbors in a town in Chiba. Both of the houses involved were built in 2001 in a small, cramped development of six buildings about 10 minutes walk from the nearest train station, which the article declines to identify. Three of the houses have changed ownership since they were first sold.
One of them is a two-story, 130-square-meter house that still looks relatively new. It was originally bought by a dump truck driver, who is now 61, for ¥22 million, which is a fairly reasonable price for a house that size which is 90 minutes from the center of Tokyo.
However, the man wasn’t seriously looking to buy a home in 2001, since he was 52 at the time, and while he was making ¥6 million a year before taxes and national insurance/pension payments he didn’t necessarily think a bank would give him a loan at his age. Then he was approached by a real estate agent who told him he could arrange it so that he could get a mortgage. The main obstacle was the fact that the driver was ¥2 million in debt to a consumer loan company. The agent told him his company would lend him the ¥2 million to pay off the debt, which would make the bank screening process easier. And as the agent predicted, the major national bank he brought the driver to approved the loan with no down payment required. The man, who had a family, had no savings or any other property that he could fall back on for his eventual retirement. According to the initial terms, the driver would pay ¥100,000 a month for a 20-year mortgage.
Five years later, he company went out of business and he took a different job at a much lower salary. Then he was in an accident and was required to reimburse his company for the damage to the vehicle. Eventually, he fell behind on his mortgage payments and the bank seized his house. It was sold at auction for ¥2.8 million, and the driver still had ¥8 million on his loan, which, because it was a recourse loan, he is still obligated to pay off. “I shouldn’t have bought the house,” he told the Asahi.
His next-door neighbor has it even worse. He also bought his house in 2001, when he was ¥900,000 in debt. The real estate agent who came to him (same one? Asahi doesn’t say) told him he would talk to the credit reporting company to have his credit history “erased,” so that he could get a loan from a regional bank, which eventually approved a 30-year loan for ¥23.5 million. The man, a company employee, paid ¥140,000 a month, which was more than half his salary. In the end, he had to take out more consumer loans to meet the payments. His debt increased to ¥3 million, and eventually he defaulted.
His home was sold at auction in 2007 for ¥8.4 million. He still owed ¥13 million on his loan. This year, he finally declared bankruptcy, and was thus saddled with an additional ¥600,000 for lawyer’s fees and ¥200,000 in court fees.
The moral of the story is, obviously: Don’t listen to real estate salesman. Their agenda is to sell properties, and once the customer signs a contract with a bank, he gets his commission and/or fee and has nothing to do with the deal any more. But it also may not be wise to trust the seeming accommodation of financial institutions. According to the Bank of Japan, the portion of bank loans made for housing was 13 percent in 2000. It increased to 21 percent in 2009. Banks, it would seem, have become more than happy to make questionable loans.