Financial Management - Housing Finance in India, Study notes of Financial Management

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Organization of Housing

Finance in India

Other Players National Housing Bank Central & State Govts. HUDCO Insurance Organisation Specialized Housing Financing Institutions Cooperative Banks. Banks Guidelines on Equity Support to HFCs. Guideline s for Refinanc e Support to HFCs Refinance Schemes Securitisa- tion Guidelines on Fair Trade Practices Code for HFCs Asset Liability management System In HFCs: ALM Information ALM Organization ALM Process Housing Finance Co.’s : Acceptance of Deposits Prudential Norms Auditor’s Report (CONTD….)

The Role of NHB (being principal H.F. Agency) falls into 3 categories: The Role of NHB (being principal H.F. Agency) falls into 3 categories: (A)PROMOTIONAL :- Includes promotion of HFIs/HFCs, coordination with Govt. and other agencies in securing necessary amendments to the existing laws to remove impediments in the Housing Sector and encouragement to participation of NGO’s & social action groups.

B. REGULATORY :

Regulating HFCs through directions and guidelines. C. FINANCIAL : Helping HFCs in the form of equity capital and refinance, promotion of loan-linked savings instruments and mortgage-based securitization.

POWERS OF NHB

POWERS OF NHB

 To Transfer Rights;

 To Acquire Rights;

 To impose conditions;

 To call for repayment before agreed

period;

 Access to records;

 Validity of loans/ advances;

 Prohibition on loans against own

Bonds/ Debentures;

 To inspect books and other documents

 To collect and publish credit

information;

 Advisory services.

REVERSE MORTGAGE LOAN (RML)

HIGHLIGHTS

Extended by PLIs, namely Scheduled Banks and HFCs registered with NHB. Eligible Borrowers :

1. Should be senior citizen of India above 60 years of age.
2. Married couple will be eligible as joint borrowers for financial assistance provided one of them is above 60 years of age.
3. Should be owner of a residential property located in India, with clear title.

Eligible Borrowers …..

4. The residential property should be free from any encumbrances.
5. Prospective borrowers should use that residential property as permanent primary residence. Determination of Eligible amount of Loan : will depend on market value of residential property, as assessed by the PLI, age of borrower(s), and prevalent interest rate.

Nature of Payment :

4. Periodic payments as decided mutually by PLI and borrower upfront.
5. Lump-sum payments in one of more tranches.
6. Committed line of credit, with an availability period agreed upon mutually, to be drawn down by the borrower.

Eligible End-use of Funds :

4. Upgradation, renovation and extension of residential property.
5. For uses associated with home improvement, maintenance/insurance of residential property.
6. Medical emergency expenditure for maintenance of family.
7. For supplementing pension/ other income.

Interest Rate : Fixed by PLI based on risk perception, loan pricing policy and other usual criteria. Fixed & Floating rate of interest may be offered by the PLIs subject to disclosure of terms and conditions in a transparent manner, upfront to the borrower.

Security :

1. By way of mortgage of residential property in favour of PLI.
2. English type mortgage generally preferred, but an equitable mortgage may also be considered. 3. Commercial property will not be eligible for RML.

Loan Disbursement by Lender to Borrower :

• (^) Loan proceeds paid directly to the borrower, except in cases of retirement of existing debt, payment to contractors or payment of property taxes or hazard insurance premiums from the borrower’s a/c set aside for the purpose.
• (^) Loan would be extended as regular monthly, quarterly, half-yearly or annual cash advances or as line of credit to be drawn down in time of need or in lump-sum.

Closing :

1. The PLIs should provide in writing, a fair and complete package of RML material and specimen documents, covering inter-alia , the benefits & obligations of the product.
2. Closing costs may include the customary & reasonable fees & charges that may be collected by the PLIs from the borrower.
3. Cost not to exceed cost paid/ charged by/ to the lender by the provider of such service(s).