LIG Engineering & Construction has filed for court protection from creditors. The request for court receivership was all the more shocking to the housing industry, given that the homebuilder is affiliated with a chaebol.

Of course, one main cause of financial trouble for the 47th largest homebuilder in terms of construction capacity was an increase in unsold apartments. Should the court grant protection, LIG will be the latest to join the 24 of the 100 largest homebuilders that have been placed under a workout program or court receivership ― an unmistakable indication that the domestic housing market is in a deep slump.

Understandably, many in the housing industry demanded that potential home buyers be given easy access to loans. Others were more vocal when they called on the administration to do away with all “debt-to-income” regulations, contending that the market would better function if it were not for intervention.

The industry found an ally in the ruling Grand National Party, which was concerned about the impact the worsening housing market could have on forthcoming elections. The party pressured the administration not to tighten the screw again on the DTI terms of home financing.

But the LIG insolvency could not be an excuse for continued easier lending to home buyers. The last thing top policymakers of the administration could afford to do was yield to the ruling party’s demand. They had to toe the line and decided to tighten the DTI lending regulations again next month as scheduled. Otherwise, the problem concerning snowballing household debt would worsen.

When the homebuilding industry was sliding into a slump last year, the administration eased DTI regulations in August, making it possible for home buyers to borrow more ― up to 50 percent of their annual income in Seoul and up to 60 percent in Gyeonggi Province and Incheon, up 10 percentage points each from the pre-August level. This provisional credit easing was set to end on March 31.

The administration could not get an endorsement from the ruling party during policy consultations on Monday. But the next day, the ruling party had to drop its demand that the rollback be indefinitely postponed, citing the continued slump as the reason.

But the problem was household debt, which has already surpassed 80 percent of the nation’s gross domestic product ― 800 trillion won. As the finance minister put it in a recent interview with a Korean-language daily, household debt would undoubtedly grow faster unless the DTI regulations were tightened again, threatening to erode the health of the lenders.

If the ruling party’s memory is short, it needs to be reminded of what has happened since the administration eased the DTI regulations last August. The final quarter of 2010 saw household debt increase by twice as much as in any other recent quarter ― 25 trillion won ― to 795 trillion won.

The rapid increase in household debt was not the only concern of the administration. It was also concerned about the rising interest rates. The central bank has already started to increase its benchmark rate gradually in its battle against inflation, which, in turn, is raising mortgage rates, making household debt servicing even more onerous.

True, the housing market remains sapped, as evidenced by the collapse of many homebuilders. But keeping the housing market weak would be more tolerable than allowing households to take on more debt at a greater cost. As such, the administration did the right thing when it decided to tighten the DTI regulations again as scheduled.

Moreover, the housing market is far from anemic. Some even suspect home rent riding on an upward curve heralds a market that is bottoming out. If so, the ruling party’s advice was irrelevant.