The Financial Services Agency (FSA) and the Japan Bankers Association plan to create special measures to reduce or exempt mortgage repayments from individuals and sole proprietors whose incomes have fallen sharply due to the effect of the novel coronavirus. The underlying goal is to create a safety net for people who have been seriously affected by the economic fallout from the coronavirus. This is so people can avoid declaring personal bankruptcy and to give them a chance to rebuild their lives.
Sharp rise in number of people asking for loan extensions
Japan declared a state-of-emergency to fight the coronavirus on April 16th. The SOE was lifted on May 25th, but the government is still asking people to practice social distancing measures and for companies to allow employees to telecommute.
Since these measures were implemented, the number of people requesting extensions for mortgage loan repayment has increased sharply, from less than 50 cases in March to about 250 in April, then quadrupling to almost 1,000 cases in May. The number of people requesting extensions peaked at almost 1,500 in June and fell in July, but was still above 1,000.
The FSA will request financial institutions to allow people whose employment has been significantly impacted by coronavirus countermeasures to extend their mortgage loan repayment period. For example, some financial institutions are responding to the FSA’s request by allowing qualifying people to extend their loan repayment period for long-term fixed-rate Flat 35 loans by up to 15 years.
Banks and other lending institutions will allow people to apply for loan relief measures, including exemptions, if they aren’t able to continue supporting themselves simply by having their loan repayment conditions changed.
Currently, private organizations created by the Japanese Bankers Association have debt consolidation guidelines for responding to natural disasters. These will be amended by the end of the year to include individuals who have been impacted by coronavirus countermeasures.
Who can qualify for relief, including loan exemption? Basically, you have to discuss your case individually with your lender (the financial institution) to see whether an exemption is applicable in your case, the extent of the exemption, and whether the sale of the house is a condition for exemption. The decision will be based on such factors as your total assets, total debt and the length of time for which your income has decreased.
Even if a debtor’s income has decreased, the lender will not necessarily offer exemption from repayment, but may instead allow temporary postponement of repayment.
Volunteer lawyers and certified public accountants will also made available, free of charge, to help people prepare the necessary documents for loan consolidation.
While it is understood that financial institutions will be negatively impacted by allowing loan repayment exemptions, this policy is meant to support individuals directly suffering from the impact of coronavirus countermeasures.
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