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State Aid

State aid: Rescue aid to the Icelandic Housing Finance Fund approved


The Authority today provisionally approved a capital injection of ISK 33 billion granted by the Icelandic State to the Housing Financing Fund (HFF).

The aid has been approved on a temporary basis subject to restructuring of HFF. The Icelandic authorities are required to submit a detailed restructuring plan for HFF by end of September 2011.

The capital injection was granted in order to maintain HFF's equity and to enable it to write down mortgage debts of certain householders in Iceland.

“The measure largely benefits the Icelandic population, as much of the benefit actually filters through HFF to its customers, allowing for reductions in  mortgage repayments,” says Per Sanderud, the President of the Authority.

Since the beginning of the financial crisis in Iceland in October 2008, many households have faced difficulties in paying their mortgages, and have negative equity in their properties. In response to those problems, representatives of the Icelandic Government and all Icelandic mortgage loan providers (HFF, pension funds and private banks operating in Iceland) recently agreed to reduce the value of certain mortgages to 110% of the value of the underlying property.

The value of HFF's assets will be significantly reduced in consequence of implementing the terms of these agreements. This, in turn, would considerably reduce the equity ratio of HFF and threaten its solvency. The Icelandic authorities have therefore decided to inject new capital into HFF in order to avoid any adverse impact on HFF, in particular in respect of its role in issuing the bonds that finance its operations on Icelandic financial markets. It has also been done in order to avoid spill over effects to other market players and the Icelandic economy in general. The measure will be followed by an in-depth restructuring of HFF.

HFF is a State-owned institution, which operates on an arms-length basis under the Icelandic Housing Act. The primary task of HFF is to provide loans to individuals, municipalities, companies and associations to assist them in acquiring residential housing. HFF is not directly funded by the State, but through returns on its own equity, issuing HFF bonds and service fees from its customers. HFF is also entrusted with a public service remit in respect of the provision of housing in Iceland. The Authority's approval of the extent of this remit is the subject of an existing procedure.


For further information, please contact:

Per Andreas Bjørgan
Director, Competition and State Aid
tel. (+32)(0)2 286 18 36


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