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.
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.
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.
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