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tian guobao, reporter of economic observer anwar breathed a sigh of relief after a listed non-performing loan transaction was completed.

anhua is the head of a branch of a city commercial bank in the south. the subject of the transaction was one of the many non-performing loans of his branch, with a principal of 1.26 million yuan and a 120-square-meter house in a third-tier city as collateral. in the end, the loan was sold at the reserve price of 880,000 yuan, a 30% discount on the principal.

anhua told the economic observer that the bad debt was a personal housing loan (hereinafter referred to as "housing loan") that had been suspended. the owner applied for a housing loan from the bank when purchasing a house in 2021 and stopped repaying the loan in june this year. bank staff had communicated with the owner many times, and the owner said he was unable to pay the monthly installments.

when it comes to defaulted mortgage payments, commercial banks usually have two traditional ways of dealing with them: one is judicial auction of the mortgaged property to repay the debt; the other is to package the claims and sell them to a professional amc (non-performing asset disposal) company.

this time, the non-performing loans were not disposed of through traditional means, but were sold directly to the market by banks.

anhua said that since the beginning of this year, the value of the collateral for some mortgages has been unable to cover the principal of the debt; coupled with the concerns of relevant parties such as regulatory agencies, local governments and courts, the disposal of non-performing loans secured by real estate through traditional means faces many obstacles.

banks have also gradually turned to cold treatment of mortgage defaults. according to the difficulties faced by borrowers, repayment ability, repayment willingness and other classification management, banks have different treatment methods for different types of mortgage defaults. compared with the past, this year's treatment methods are more flexible and diversified.

cold treatment

anhua told the economic observer that by the end of 2023, the number of overdue mortgages in his branch had increased significantly, with a total of more than 50. in previous years, except for special years, the number of mortgage defaults in this branch would not exceed 10 per year, and most of them would be handled within the year.

nowadays, for mortgage loans that have been suspended, the city commercial bank where anhua works will adopt more flexible disposal methods while ensuring that the bad debt rate and risks are controllable.

when the owner's mortgage is overdue for the first time, the branch responsible for issuing the loan will contact the owner as soon as possible to understand the reason for the default and the difficulties the owner is facing. within the scope permitted by the policy, the bank will help the owner solve the problem to the greatest extent possible and try every means to persuade the owner not to default.

for example, if the owner stops paying the mortgage due to temporary loss of income, but has the conditions and ability to resume employment, the bank will allow the owner to suspend loan repayments based on full consideration of the actual conditions. the owner can resume repayments after six months or a year when he has the ability to repay.

anwar said that due to the great macroeconomic pressure in recent years, all industries have experienced a decline in income or even a loss of income sources. in this case, banks have an obligation to work with borrowers to overcome difficulties.

another person from a joint-stock bank told the economic observer that his branch also has similar operations, but gives owners more options. for example, if the owner's income decreases and he cannot afford the current monthly payment, the bank will negotiate with the owner to reduce the monthly payment for a period of time, or even just pay the interest.

for home loans that are overdue and for which negotiations have failed, the bank will classify and dispose of them according to the value of the collateral.

for defaulted mortgages with collateral in the core areas of first- and second-tier cities, banks will promptly monitor the supply and demand situation in the area where the collateral is located, set a reasonable auction price, and ensure that the benefits of non-performing assets are maximized.

for mortgage loans that are defaulted on in cities or regions with declining real estate prices, especially when local housing prices fluctuate greatly, banks will stop losses in a timely manner. the above-mentioned non-performing mortgage loan with a principal of 1.26 million yuan is of this type. in less than two years, local housing prices have fallen by more than 40%.

anhua said that among the existing non-performing mortgage loans, some are due to historical problems, which are either difficult to deal with, such as there are elderly people or children living in the family; or due to the rapid decline in local housing prices, disposal at the current market price will cause great losses to the bank.

there are also some bad mortgages that are caused by banks missing the best time to dispose of them in pursuit of maximizing profits.

the branch where anhua works had a mortgage that was suspended in 2019. at that time, housing prices were still on the rise, and the bank deliberately delayed its disposal in order to maximize its profits. in 2021, the principal and interest of the mortgage totaled 1.48 million yuan. but at that time, the real estate market began to decline, and the mortgage failed to sell. by the second half of this year, including the penalty interest, the principal and interest of the non-performing mortgage totaled 1.9 million yuan. but considering the current market conditions, anhua's branch set the starting price at 1.2 million yuan, which was the original principal amount of the non-performing mortgage. but due to the rapid decline in the market, the mortgage failed again.

anhua said that in addition to housing loans, business loans and mortgage loans have also faced considerable pressure to default since this year. there are many factors that cause defaults, including employment and income factors, as well as confidence and expectations, but the root cause is the fall in housing prices. this is also the main reason why most owners default on their loans.

multi-party game

in the past, since the number of defaulted mortgages was relatively small, the branch where anhua worked usually disposed of the mortgaged property through judicial auctions. after the owner defaulted on the mortgage, the branch applied to the local court for compulsory execution. after the court issued the execution document, the court auctioned the property through trading platforms such as alibaba or jd.com.

unlike previous years, this year, when anhua's branch applied to the court for compulsory execution of the relevant mortgage default, it encountered a new situation. although the court accepted the application, it was slow to file the case. in the past, it usually took no more than three months from acceptance to filing and then to issuing the execution order. since the beginning of this year, some of the cases accepted by the court for compulsory execution at the beginning of the year have not yet been filed.

the head of mortgage business at a branch of a joint-stock bank told the economic observer that some of his branch's enforcement cases had been suspended in the past for various reasons, but it was particularly difficult to resume enforcement this year. some enforcement cases require mediation by branches or even the head office.

mortgage defaults involve livelihood issues. some local governments are worried that judicial auctions of properties will cause some groups to lose their homes, so they do not want to deal with them through judicial auction procedures. this is an important reason why mortgage defaults have increased this year while judicial auctions of properties have not changed significantly.

some places’ concerns about foreclosure houses also stem from the need to stabilize housing prices. since the prices of foreclosure houses are generally lower than the market price, too many foreclosure houses will often affect the housing prices in a city, and the two may even form a vicious cycle. this is another important reason why local governments are reluctant to release a large number of foreclosure houses.

since the beginning of this year, some banks have packaged and sold non-performing loans to amcs, but it is not easy to sell them at a good price because amcs also face the problem of disposing of the asset packages after receiving them.

traditional disposal methods are no longer feasible.

taking the mortgage of the 1.26 million yuan debt of the branch where anhua is located as an example, the owner's purchase price of the house was 15,000 yuan/square meter; the current market listing price of second-hand houses of the same floor and the same type in the community where the mortgage is located is around 12,000 yuan/square meter. if the debt transaction is converted into a mortgage transaction, then the transaction unit price of the mortgage is only 7,300 yuan/square meter.

for anhua's branch, if more than 50 mortgage loans are handled in a similar manner, the bank will face a large loss. if house prices continue to fall, the losses caused by delayed handling may be even greater.

in addition, what should be done with those owners who have been persuaded by the bank to delay or suspend mortgage repayments but are still unable to resume the ability to repay monthly payments after the grace period ends?

the person from the above-mentioned joint-stock bank said that no matter whether it is real estate companies, urban investment companies, mortgage loans, or operating loans, as long as risks occur in any field, as long as they are handled carefully, prevention and risk isolation are done well, it generally will not cause fatal damage to the bank, but will only result in the loss of a few years of profits.

at present, he is worried about the accumulation of risks in various fields. previously, under the guidance of regulators, banks have avoided defaults by extending the overdue debts of real estate companies and urban investment companies. it is still unknown whether these extended debts can be successfully recovered. if overdue mortgage loans are also resolved in this way, banks will inevitably face greater pressure.

from passive to active

during the covid-19 pandemic, anhua's branch experienced a wave of mortgage defaults. however, the defaults were sporadic and concentrated, not a progressive process, and did not spread over a large area. the risks were relatively controllable and did not cause much impact on the bank.

since the fourth quarter of 2021, liquidity risks of private real estate companies have erupted, and the supply and demand relationship of real estate has reached a turning point. the land transaction market is sluggish, and some local urban investment companies have difficulty repaying their debts. banks have extended some loans involving real estate companies and urban investment companies.

the above-mentioned joint-stock bank official said that the extension is just to postpone the risk and exchange time for space. with the current asset scale and risk tolerance of his bank, it is barely able to cope with the risks related to real estate and urban investment, so he does not want to see a large-scale default in the field of personal mortgage loans.

as early as the second half of 2023, some commercial banks have begun to conduct a comprehensive survey of existing mortgage loans, focusing on mortgage loans between 2018 and 2021. the above-mentioned joint-stock bank personnel said that because house prices and mortgage rates are both high during this period, it is more likely to default on payments.

after investigation, the city commercial bank where anhua works divided the existing housing loans into five categories: the first is the high-quality category, which are mostly loans for employees of government agencies, enterprises and institutions, and the owners are relatively qualified; the second is the stable category, which are mostly early home buyers, with small monthly payment pressure and almost no risk of default; the third is the attention category, with moderate monthly payment pressure, and once the owner's income drops significantly, default may occur; the fourth is the key attention category, where the income is difficult to cover the monthly payment, and the risk of default is high; the fifth category is the housing loans that have been defaulted.

anhua said that the risks for the first and second types of customers are relatively small and only require normal maintenance; the fifth type has already stopped paying and risks have already formed; the third and fourth types of mortgages are the focus of banks' attention.

for these two types of mortgage customers, the city commercial bank where anhua works did two things:

first, for some existing mortgage loans with significantly higher interest rates, within the scope permitted by the policy, banks will proactively reduce interest rates for mortgage loans that meet the policy based on current mortgage interest rate changes and other conditions to reduce the monthly payment pressure on customers. anhua said that although banks will lose some interest income, the risk of default will be greatly reduced.

second, banks should proactively communicate with customers to understand their actual difficulties and help them to the greatest extent possible within the policy scope. for example, if a customer is temporarily unemployed and under great financial pressure, banks can negotiate to reduce the monthly payment or postpone loan repayment to ensure that the customer will not default on the loan.

it is not only the city commercial bank where anhua works that has changed from passive response to active prevention. most banks have adopted different proactive defense measures to try to nip risks in the bud to ensure that the risk of supply default will not erupt on a large scale.

an official from a large bank told the economic observer that the branch in his city has proactively lowered mortgage rates on several occasions for some first-time homeowners who have high mortgage rates and heavy monthly payment pressures.

the source said that previously, the focus of banks' risk control business was on the pre-loan stage. after experiencing a series of events such as real estate liquidity risk, banks further improved their risk control systems and increased the classification management of existing mortgage loans, which to a certain extent increased the risk barriers.

at present, some banks in some cities have lowered the interest rate for first-home mortgages to less than 3%, close to the housing provident fund loan interest rate. according to the above-mentioned large bank personnel, according to the current mortgage interest rate, some existing mortgages still have room for reduction. however, due to the current low interest rate spread, it is not a good time for banks to reduce the interest rate of existing mortgages.

(at the request of the interviewee, anhua is a pseudonym in this article)