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The Icelandic Homes Association has a wide range of English-language resources on its website

The Reykjavk Grapevine Issue 18 2013 For more information on Icelands Index-Linked Mortgages, see Dr. Jacky Mallets April 10
2012 Grapevine article, Robbery By Math.

Economics | Housing

Shadow Boxing With

The Banks
Icelands Homes Association Fights
For Mortgage Reform
By Larissa Kyzer

During a single week in early October, 154 Icelandic families quietly defaulted ment never talks about. They just talk ing anything about it.
about what will happen to people after But then this also begs the question of
on their mortgages and had their homes put up for forced state auctions, or fore- foreclosure. But then you are accepting where the public stands on the matter
the foreclosures, not stopping them. and just where are the individuals who
closure sales. They arent the first families to be threatened with the loss of their Vilhjlmur is frequently in contact have lost their homes?
homes this year, and based on current trends, they wont be the last. Rather, these with members of parliament, present- According to the Homes Association,
ing the Homes Associations case, and 15% of registered voters signed a petition
families are part of a steadily increasing number of Icelanders whose bankruptcy requesting rectification of current mort- for the abolishment of index-linked loans,
is precipitated by compounding loan interest and skyrocketing principals, victims gage and borrowing laws. One of the indi- and they say that polls have indicated that
viduals he regularly approaches about this as much as 80% of the Icelandic public
of what MIT graduate and researcher Dr. Jacky Mallet referred to in this paper as matter is Minister of the Interior Hanna supports such reform. And there have
the most unique instrument of financial self-destruction over the last 30 years. Birna Kristjnsdttir. He happened to been sporadic news reports and testi-
have a meeting already scheduled with monials from Icelanders who are facing
her the week that the 154 families had foreclosures. But there is also indication
their homes put up for sale. Following this of a growing despondency among those at
Tilting at foreclosures
Index-linked loans, or Vertrygg ln, as structured in order to have extremely meeting, Vilhjlmur says, Hanna Birna risk of mortgage default.
theyre called, make up at least 85% of low initial payments. This soundsand For three years, Vilhjlmur has dedicated made a statement to the press, saying Vilhjlmur and the Homes Asso-
the Icelandic mortgage market, accord- lookslike good news for borrowers, himself to fighting for loan and mortgage that loan providers constitutional rights ciation offer their advice and support to
ing to The Homes Association of Ice- but it actually means that monthly repay- reform in Iceland. He gets no salary for could not be overturned, and moreover, homeowners facing foreclosure, and will
land. This association, which represents ments are not enough to cover the interest his work, although he works full time and that in consideration for the individu- accompany them to the hearings where
about 10% of Icelands homeowners, is that is accruing, let alone the loan princi- has four children at home. He works out als who have already lost their homes, it their situations are reviewed. In the case
currently suing bank lenders for provid- pal. So, even as you are making monthly of what used to be his office when he was would be immoral to change the foreclo- of the 154 families who had their homes
ing misinformation about the benefits payments on your loan, the amount you a real estate agent, a profession he worked sure process now. put up for auction in October, however,
of these loans. It also contends that just owe is actually increasingdrastically. in for 20 years. only one individual came to the Homes
as foreign currency loans were deemed To make matters worse, in Iceland, on The main reason I got into this, Vil- So even as you are mak- Association and requested assistance. He
illegal in 2010, index-linked loans are in top of a base fixed interest rate, the prin- hjlmur explains, is because I had been says that none of the other families even
violation of European Economic Area cipal of an index-linked loan is directly advising so many people to take foreign ing monthly payments attended the hearings in which their as-
agreements, which ban unfair terms in connected to the Consumer Price Infla- currency loans. on your loan, the amount sets were seized.
consumer contracts. tion Index, and the repayment schedule Vilhjlmur himself opted for one of We are trying to tell people: you have
Given that Prime Minister Sigmun- is most often set to 40 years, versus say 25 the now-illegal foreign currency loans for you owe is actually in- to defend yourselves, you have to do some-
dur Dav has been an outspoken critic of years in the US. In a country with a his- his home in 2005, and lost his home in creasingdrastically. thing, he says. It has been five years
loan indexationand organised much of tory of hyperinflation, this is disastrous. a foreclosure sale after the crash. Under [since the crash], and people are just...seri-
his election campaign around promises To illustrate this more concretely, take current Icelandic law, even if the courts ously, they are sleeping. But we shouldnt
of mortgage reform and debt reliefyou an example offered by Vilhjlmur Bjarna- determine that the conditions of a loan Its as if you have an open mine have to do thisthe government should
might expect this lawsuit to have the gov- son, the chair of the Homes Association. agreement were illegal, individuals who shaft, Vilhjlmur says, but you decide have done it.
ernments full and vocal support. The re- When researching home loans available have already gone bankrupt and lost their to leave it open out of respect for the peo- Should the court rule in favour of
ality, however, is very different. to him in 2005, Vilhjlmur looked at an homes cannot recover any of their assets. ple who have already fallen down there. the Homes Association, and deem
index-linked mortgage. The loan he want- So despite the fact that the loan, which He wonders about Hanna Birnas index-linked loanslike the foreign
Index-Linked Mortgages: ed was for 26 million ISK with a 4.15% drove his family into bankruptcy has now position. Why is she so aggressive in currency loans before themillegal,
fixed interest rate. Estimating for 3.5% been determined to be illegal, there is no defending the banks? Why is she not de- the hope is that there would be a sub-
A (not so) short explanation
inflation in the coming years, he found way for Vilhjlmur and his wife to recover fending our homes? She is our minister stantial basis for reforming mortgage
While index-linked loans are all too com- that under the terms of the index-linked their property. and the constitution is for the people, not and foreclosure practices in Iceland. If,
mon in Iceland, they are dramatically loan, he would eventually be paying 120 After the crash, it was deemed advis- for companies. If I could understand her on the other hand, the Homes Associa-
different from the loans most commonly million ISK back to the bank. In reality, able to transfer these loans into Icelan- reasoning, I could fight against it. Right tion does not win their case in Iceland,
available to homeowners in other coun- however, Iceland has had 89% inflation dic index-linked loans, but despite the now, Im like Don Quixote. Vilhjlmur says that they have no in-
tries. They therefore deserve some expla- over the last eight years. So had he taken fact that their legality is also being chal- tention of dropping the matter. Rather,
nation, although it is difficult to do this a loan of 26 million ISK in 2005, Vilhjl- lenged, the banks continue to foreclose For the greater good they will take the issue to the European
without a detailed discussion of Icelands murs loan principal would have mush- on families who are defaulting on their Free Trade Association court, as Iceland
longstanding problems with currency roomed to a total of 560 million ISK. loan payments. According to Vilhjlmur, it has actually is an EFTA member. What is illegal, is
devaluation, hyperinflation, monetary For people from other countries, its One of the things I have been work- been extremely difficult to get any public illegal, he says. We will never stop.
expansion, and borrowing practices. very difficult to understand these loans, ing on, he says, is that you should be comment whatsoever from a government
However, the shortest and simplest expla- he says. They say, why did you let the able to get your house and your collateral official on these matters. Most often, his Turn the page to read a related piece about
nation (still neither all that short nor that government and the bank rob you every back. If you go bankrupt, there should be presentations and petitions are met with the government's recently announced debt
simple) is as follows: day for 30 years? a special loan officer who then takes over nearly unilateral stonewalling. It is like relief measure for households.
Index-linked loans are negatively your property, but does not immediately fighting an invisible foe, he says. No one
amortized, which means that they are sell it. This is an issue that the govern- is really opposing methey just arent do-