BKN can provide credit guarantees for new construction of multi-family and single-family housing and for the renovation of multi-family housing. The guarantee is up to 90 per cent of market value. Credit guarantees are also available for the purchase of housing properties for tenure conversions from renting to cooperative renting. In cooperative renting the tenants own their property jointly through a legal entity and rent their apartment from this legal entity. This guarantee is up to 95 per cent of market value.
To obtain a BKN credit guarantee the borrower must show a long-term capability to pay the costs generated by the property. The credit guarantees are based on the market value of the property. In areas where the market values are low the guarantee can be based on standardised values.
A guarantee fee is set for each project. Revenue from these fees has to cover expected losses and other costs.
On 31 December 2009 BKNs guarantee stock for new construction and renovation amounted to 11 000 new dwellings and 5 000 renovated dwellings, with an aggregate guarantee amount of SEK 1,8 billion. New construction accounted for 85 per cent of the guarantee amount and renovation for 15 per cent.
Other guarantee schemes
BKN also has a credit guarantee scheme for the deferral of interest payments for older housing in financial difficulties. In addition, BKN, can also provide a credit guarantee for a new first mortgage in the event of a sale, if this is necessary to avoid a loss under the original credit guarantee.
Since 1 July 1998 special credit guarantees are also available for municipalities with overwhelming financial commitments in housing. At present, these guarantees can be given for loans taken by the municipality to meet its commitments, for loans raised by a municipal housing company for a recontruction programme and to replace municipal guarantees given for loans raised by tenant-owner housing associations.
Default management
BKNs guarantee compensates the lender for losses on a guaranteed loan due to the borrowers inability to service the loan. The main principle is that the property has to be sold if the lender wants to be compensated through the BKN guarantee. BKN may also participate in composition agreements, which means that compensation is paid from the guarantee without the property being sold. This is on condition that the expected loss resulting from the composition recommendations will be significantly lower than if the property is sold.
Compensation from a BKN guarantee covers capital losses, interest in arrears and legal and other costs. The maximum compensation is the value of the loan covered by the guarantee plus a supplement and interest at a standard rate during the compulsory procedure.
When BKN compensates losses under its credit guarantee, it takes over the lending institutions right to demand repayment of these losses by the borrower. If the borrower is regarded as unable to repay the debt in the foreseeable future, BKN can forgive this debt wholly or in part. There is no appeal against the decisions of BKN.
In considering BKNs default management programme it is important to realise that a significant part of the programme is carried out by the lenderitself. The lending institution is responsible for administering a loan guaranteed by BKN in the same way as a loan without such a guarantee. An institution which neglects this responsibility is taking the risk that its guarantee will be invalid.