Europe
1:54 pm
Tue January 31, 2012

For Hungarian Borrowers, A Mortgage Nightmare

Originally published on Tue January 31, 2012 6:16 pm

Since the U.S. housing bubble burst, many Americans have found themselves struggling to pay off mortgages that are worth more than their homes.

Now, imagine if those mortgages were in a foreign currency that has soared in value compared with the domestic currency — the one in which paychecks are issued.

As Hungary's currency plummets to record lows, this is exactly the plight of some 1 million Hungarians, who, during better financial times, took out mortgages and consumer loans in Swiss francs.

Levante Jancovics is one of these ordinary citizens, trapped in a financial nightmare.

The slightly unkempt 42-year-old teacher — with shaggy Jerry Garcia hair and beard — lives in Budapest, the Hungarian capital, in a chilly two-bedroom flat amid a labyrinth of communist-era, cement high-rise apartments.

"A lot should be spent on the insulation and the heating system and so on. Nobody can afford it because quite poor people live here," Jancovics says.

The working poor, that is. Jancovics has a job — at least three, in fact. He teaches English at a Budapest school for kids with behavioral problems. And he has several private contracts to teach English. The divorced father of two is raising his teenage sons on his own, and he is struggling to pay his bills.

"The basic costs, like heating and food, everything, went up. And our income has not," Jancovics says.

Adding to his pain, the value of the Hungarian currency, the forint, has plunged; all the ratings agencies have slashed Hungary's credit to junk status; and Hungary's sales tax went up — again — on New Year's Day. It's now at 27 percent, the highest in the European Union. Happy New Year, Jancovics says, with a slight chuckle.

"It is quite hopeless, to tell the truth. I can work maybe 50 hours or 60 a week and still cannot live on [my income]. So that's the situation," he says.

Exchange-Rate Roulette

The situation is made far worse by the fact that he took out three loans in Swiss francs. The first — a consumer loan he took out in 2007 — seemed like a good deal at the time, he says. He badly needed money to pay bills. And in 2009, when he had a chance to buy his apartment at a good price, he took out a mortgage, which was also in Swiss francs.

Jancovics says he didn't qualify for a mortgage in forints. But banks, both foreign and Hungarian, were pushing loans in Swiss francs with much lower interest rates — and, some analysts charge, downplaying the risks.

At the time, the exchange rate was 196 forints to the franc. Then, as debt mounted in Greece and elsewhere in the eurozone, and the euro began to look shakier, the Swiss franc became a safe haven for investors — and soared. One franc is now worth 250 Hungarian forints. Jancovics' mortgage burden has gone up nearly 30 percent. His other two loans have gone up even more.

"I knew that they were risky because I knew that there was a risk of the exchange-rate changes. But nobody expected such a big change in the exchange rates," he says.

Today, he says, he is not really sure what he owes.

Jancovics flips through a small mountain of envelopes containing bank statements he hasn't opened.

"I didn't dare because it has been changing a lot, and I was just struggling with my monthly payments," he says.

No Relief In Sight

More than 1 million Hungarians are in similar straits. Nearly 65 percent of the country's household mortgages were denominated in foreign currencies — mostly Swiss francs, according to the National Bank of Hungary.

At the same time, home values have declined. In December 2011, the government offered "underwater" homeowners a deal: They could pay back the Swiss franc loans at a much lower rate if they paid it all off at once. The banks howled in protest that the government was illegally forcing them to swallow huge losses. So far, the government is proceeding with the plan.

But for Hungarians like Jancovics, the scheme is worthless.

"For that, you needed a lot of cash, or a huge family who put the money together, that I don't have," he says.

Friends sometimes helped out, he says. But it wasn't nearly enough, even with three jobs. Jancovics implored his bank to help. It agreed to give him a six-month reprieve on any payments.

"When it finished, I realized I need another half-year. And that's the last time. I will have to pay the first monthly payment from February," Jancovics says.

And what will he tell the bank?

"I'm going back and I will ask them again whether it will be possible to reduce my payment or not, or how. And I want to live a normal life. That's what I really want," he says.

The hope for a normal life, his kids and help from friends, Jancovics says, are what keep him going.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

MELISSA BLOCK, HOST:

Many Americans these days are struggling to pay off mortgages worth more than their homes. The problem is the same in Hungary, only far more complicated. That's because almost two-thirds of the country's home mortgages were taken out in foreign currencies, mostly Swiss francs. And here's the real problem, the value of all those Swiss francs has skyrocketed but Hungarian paychecks aren't issued in francs, they're issued in the national currency, which is weak and getting weaker. It's the plight of more than a million Hungarians.

And NPR's Eric Westervelt spent a day with one of them.

ERIC WESTERVELT, BYLINE: The gorgeous buildings of central Budapest glisten at night. But drive away from the 19th century neoclassical charm, and you quickly run into a labyrinth of Communist-era high-rise apartments.

LEVANTE JANCOVICS: It's nearly impossible to live on...

WESTERVELT: Forty-two-year-old Levante Jancovics lives in one of these rundown cement behemoths. Jancovics, a slightly unkempt teacher with shaggy Jerry Garcia beard and hair, welcomes me with a smile out of the winter rain into his chilly two-bedroom flat.

JANCOVICS: A lot should be spent on the insulation and the heating system and so on. And nobody can afford it because quite poor people live here.

WESTERVELT: The working poor. Jancovics has a job - at least three, in fact. He teaches English at a Budapest school for kids with behavioral problems. And he has several private contracts to teach English. The divorced father of two is raising his teenage sons on his own and he's struggling to pay his bills.

JANCOVICS: Our basic costs, like heating and food - everything went up. And our income has not.

WESTERVELT: Adding to his pain, the Hungarian currency, the forint, has plummeted to record lows. All the ratings agencies have slashed Hungary's credit to junk status. Oh, and Hungary's sales tax went up again on New Year's Day. It's now at 27 percent, the highest in the European Union.

Happy New Year, Jancovics says with a slight chuckle.

JANCOVICS: It is quite hopeless, to tell the truth. I can work maybe 50 hours or 60 a week, and still cannot live on. So that's the situation.

WESTERVELT: A situation made far worse by the fact that he took out three loans, including a mortgage to buy this apartment, in Swiss francs. The first, a consumer loan he took out in 2007, seemed like a good deal at the time, he says. He badly needed money to pay bills. And when had a chance to buy his apartment at a good price, he took out a mortgage, also in Swiss francs.

He says he didn't qualify for a mortgage in forints. But banks, both foreign and Hungarian, were pushing loans in Swiss francs with much lower interest rates.

At the time, the exchange rate was about 196 forints to the franc. Then as debt mounted in Greece and elsewhere in the eurozone and the euro began to look shakier, the Swiss franc became a safe haven for investors and soared. One franc is now worth 250 Hungarian forints.

Jankovics's mortgage burden has gone up nearly 30 percent. His other two loans have gone up even more.

JANCOVICS: I knew that they were risky because I knew that there was a risk of the exchange rate changes. But nobody expected such a big change in the exchange rates.

WESTERVELT: Today he says he's not really sure what he owes.

JANCOVICS: It's a lot. I don't know exactly how much it is.

WESTERVELT: Jancovics flips through a small mountain of envelopes containing bank statements he hasn't opened.

JANCOVICS: Ah, I didn't dare...

(SOUNDBITE OF LAUGHTER)

JANCOVICS: ...because it's been changing a lot, and I was just struggling with my monthly payments.

WESTERVELT: More than one million Hungarians are in similar straits. Nearly 65 percent of the country's household mortgages were denominated in foreign currencies - mostly Swiss francs - according to the National Bank of Hungary. At the same time, home values have declined. The government offered underwater homeowners a deal. They could pay back the Swiss franc loans at a much lower rate if they paid it all off at once. The banks howled in protest that the government was illegally forcing them to swallow huge losses.

Anyway, the scheme was worthless to Jancovics.

JANCOVICS: For that you needed a lot of cash, or a huge family who put the money together that I don't have.

WESTERVELT: Friends sometimes helped out, he says, but it wasn't nearly enough - even with three jobs. Jancovics implored his bank to help. It agreed to give him a six month reprieve on any payments.

JANCOVICS: When it finished, I had to realize that I need another half year. And that's the last time. I will have to pay the first monthly payment from February.

WESTERVELT: Your loans are going to come due in February. You have to start paying them again. What are you going to tell the bank when you go in?

JANCOVICS: So, I'm going back and I will ask them again whether it will be possible to reduce my payment or not, or how. And I want to live a normal life. That's what I really want.

WESTERVELT: That, my kids and help from friends, he says, are what really keep me going.

Eric Westervelt, NPR News, Budapest. Transcript provided by NPR, Copyright National Public Radio.