Audit

July 30 (Asia Today) — South Korea’s state-run housing guarantor failed to properly investigate debtors and recover claims after paying about 15 trillion won, or $10.3 billion, under defaulted guarantees over the past five years, a government audit found Thursday.

The Housing and Urban Guarantee Corporation, commonly known as HUG, has yet to recover about 12 trillion won, or $8.2 billion, of that amount.

The Board of Audit and Inspection released the findings of its regular audit of the corporation, identifying problems in guarantee issuance, project financing reviews, debt collection and customer refunds.

HUG provides guarantees intended to protect tenants if landlords fail to return jeonse deposits.

Jeonse is a housing rental arrangement widely used in South Korea in which a tenant provides a large refundable deposit instead of paying, or in exchange for paying less, monthly rent.

Corporation undercharged guarantee fees

Auditors found that HUG undercharged a corporate rental business by about 2.77 billion won, or $1.9 million, when issuing guarantees covering 12,752 homes.

HUG’s rules required it to calculate the fee using the company’s credit rating on the date the guarantee was issued. Employees instead used an earlier, more favorable credit rating from the application date.

The audit board called for disciplinary action against the employees involved and instructed HUG to review ways of collecting the unpaid fees.

HUG has reported financial losses since 2022 as rental deposit guarantee defaults increased, including cases involving large-scale jeonse fraud.

Its operating loss grew from 242.9 billion won, or about $166 million, in 2022 to 2.19 trillion won, or about $1.5 billion, in 2024.

Weak reviews led to $261 million in PF guarantees

The audit also found deficiencies in HUG’s reviews of housing project financing guarantees.

Such guarantees rely largely on a developer’s projected income from future home sales, making an accurate assessment of expected cash flow essential.

Auditors found that HUG accepted financial data in which developers had arbitrarily delayed construction payments, improving the projects’ apparent debt-service capacity.

As a result, HUG approved a combined 382 billion won, or about $261 million, in guarantees for three projects that should have been rejected under its own standards.

HUG also incorrectly graded two other projects and collected about 1.64 billion won, or $1.1 million, less in guarantee fees than it should have.

Thousands of debtors were not investigated

The audit board also found major gaps in HUG’s efforts to identify assets belonging to debtors after paying claims on their behalf.

An examination of seven regional management centers found no record of an asset investigation for 2,915 of 9,003 debtors, or 32.3%.

The rate varied widely among regional offices. The Seoul Northern Center investigated the assets of only 21.6% of the debtors assigned to it, compared with 99.8% at the Seoul Western Center.

HUG’s headquarters failed to adequately monitor or address those differences, auditors said.

Tenants missed refunds

HUG also failed to refund fees to some tenants who had been enrolled in both a landlord rental deposit guarantee and a tenant jeonse deposit return guarantee.

The audit identified 1,699 cases involving about 173 million won, or approximately $118,000, in unreturned fees.

It also found 454 guarantee-default cases in which money owed to tenants had not been properly returned.

The audit board instructed HUG to analyze the causes of the problems and develop improvements in its core operations, including guarantee reviews, issuance procedures and debt recovery.

It also called for disciplinary or corrective action against employees responsible for improper decisions.

— Reported by Asia Today; translated by UPI

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Original Korean report: https://www.asiatoday.co.kr/kn/view.php?key=20260730010011338