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Iceland’s Housing Fund to Benefit From Writedown, Moody’s Says

Iceland’s plan to help households buckling under inflation-linked mortgages should benefit the Housing Financing Fund, the island nation’s largest mortgage provider, according to Moody’s Investors Service.

“HFF should benefit from the plan, provided that the government –- as indicated –- implements measures to safeguard the HFF against the cost of increasing pre-payments of mortgage loans,” Moody’s said in a statement. The Treasury may have to set aside “additional funds for the HFF,” Moody’s said.

Household debt will be reduced by as much as 150 billion kronur ($1.3 billion), in part by raising taxes on banks and offering tax incentives to homeowners. The tax is expected to increase government revenue by 37.5 billion kronur and it will be levied on the debts of financial institutions, including Iceland’s failed lenders Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf.

Moody’s warned that this new tax base might make it more difficult for Iceland to lift capital controls, imposed after the banking failure in 2008. Krona restrictions are currently blocking about $7.2 billion in assets from being offloaded.

Negotiations with creditors “over the final settlement of the estates have stalled in the past several months and the imposition of the bank levy might make coming to an agreement with the creditors more difficult,” said Moody’s. “This in turn could delay the lifting of the capital controls.”

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