November 24th Dollar-Won Exchange Rate. A graph of exchange rate fluctuations over three months. A steep upward trend has been observed for two months since October. [Photo = Naver Capture]

Banks are successively halting or reducing mortgage loans. The government and some media outlets explain this is due to "compliance with loan volume regulations."

However, the cause identified by the market is entirely different. Analysis gaining traction suggests that the direct factor is not that loans are blocked due to regulations, but rather the surge in funding costs brought about by the soaring exchange rate, meaning a cost shock created by regime risk.

The upper limit targets for household loan increases submitted by the four major banks (KB Kookmin, Shinhan, Hana, Woori) this year were approximately 5.9 trillion won, but the actual increase has already reached 7.9 trillion won, exceeding the target by 32%. If regulations were the cause, banks should have raised the lending threshold months ago. The fact that a "shutdown" occurred belatedly, therefore, serves as evidence that the actual reason for the loan reduction was not volume regulation but rather unstable funding costs due to the surging exchange rate.

It is pointed out that the volume regulation served as an excuse for banks to conceal cost shocks, and was exploited by the government to conceal the political burden of the rising exchange rate. The media, whether out of ignorance or for some unknown reason, was busy reporting this as exceeding volume limits.

The actual flow of events supports this. As the dollar-won exchange rate soared to the 1470 won level, banks' foreign currency funding costs also rose significantly in a short period. When funding costs become unstable, banks first tighten mortgage loans with longer maturities and larger amounts. This is an economic self-defense unrelated to regulations. The timing of the shutdown precisely coinciding with the surge in the exchange rate is within the same context.

Despite this, the government and mainstream media repeated the technical term "volume regulation" to blur the focus of responsibility. The essential factors of policy uncertainty and failed exchange rate management were not mentioned, and the responsibility and burden of policy signal distortion were entirely shifted to the public.

And the damage is already appearing.

Seven vulnerable groups are simultaneously suffering direct damage: △Young couples and newlyweds facing their move-in dates △Dual-income households in their 30s and 40s looking to transition from renting to owning △Self-employed individuals and freelancers who find it difficult to provide income verification △Those looking to sell their existing home and move to a new one △Holders of pre-sale apartment contracts △Vulnerable groups in the rental market △Small and medium-sized construction companies and their subcontractors in provincial areas.

Disruptions arising from a single loan are leading to contract cancellations, delayed relocation schedules, burden of penalty fees, and credit downgrades, resulting in structural damage.

Some argue, "If that's the case, why not ease the volume regulations?" However, since the cause of the loan halt is costs rather than regulations, the situation will not change even if regulations are eased. This is because banks will not increase loans unless their funding costs stabilize.

The key is not regulation, but "exchange rate stability."

However, the South Korean government has few means to stabilize the exchange rate unilaterally.

Intervention in the foreign exchange market is temporary, and interest rate hikes shock households and the real estate market.

Ultimately, the immediate solution trusted by the market is a "Korea-US currency swap," but swaps are influenced more by political trust than economic logic.

The US considers factors such as △strategic alignment △market trust △legal stability △its own national interests as conditions for entering into a swap agreement. The financial sector views the Lee Jae-myung administration as moving in reverse on all four of these fronts. Issues with alignment with China, decreased policy predictability, and the politicization of legal and institutional reforms are acting as factors that lower Korea's possibility of a swap and increase exchange rate volatility.

If exchange rate instability continues, the shock can transition into a multi-stage structure leading to a contraction of household liquidity → an expansion of real estate project financing (PF) risks → a tightening of financial markets → housing and rental market instability. This mortgage loan shutdown is merely the signal flare.

Ultimately, the essence of this situation is clear.

It is not regulations, but the cost shock created by regime risk that has closed the mortgage loan market, and the burden is concentrating on seven vulnerable groups.

The "volume regulation" excuse cited by the old media is nothing more than rhetoric used to obscure the direction of responsibility.

And the following single sentence summarizes all the realities.

"The price of choosing the Lee Jae-myung administration has come back as a cost to the financial markets, and the people are now bearing that cost with their entire being."

If the structure where regime risk increases financial costs and those costs are passed on to the public continues, it is highly likely that similar crises will repeat in the future. 

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