Description
This PPT includes housing in india, reverse mortgage, rules, financial market, eligibility, demographics
? A basic human necessity supporting economic activities ? Second largest employment generator, next to agriculture. ? Has forward and backward linkages with over 250 ancillary industries. ? Every Rupee spent on construction, an estimated 75-80 paise is added to GDP. ? GOI created enabling Fiscal, Monetary and Legal Environment ? Housing Industry Growth in last 5 years –
3.0 % p.a. Physical Terms Financial Terms 30% p.a.
? Contribution of Housing in GDP is about 6% ? Percentage of Mortgage Debt to GDP is 8.50% (E) in 200506, still way below China’s (12%), Malaysia (22%), HongKong (40%) and US (65%).
REVERSE MORTGAGE
2
?
What is Housing Finance ?
? ? ? ? ? ? ? ? ? Construction of a House / Flat Purchase of land/ ready house / flat Extension of existing house / flat Regn/ Repairs, renovation of a house / flat Furnishing /Insurance / Home Equity/ Rentals Shopping Complex, Schools, Hospitals Co-operative Housing Society, Construction of Workers / Employees Qrtrs And now… REVERSE MORTGAGE LOANS!
REVERSE MORTGAGE
3
? ? ? ? ? ? ? ?
Roti, Kapda aur Makaan ! Build a shelter !! A real saving for any class individual An asset always likely to appreciate Compare with several other savings Easy to acquire, repay and transfer A good tax savings facility A decent line of business in modern days And now RML…. To maintain decent living
REVERSE MORTGAGE
4
?
Any Individual ?
? Salaried/ Self-employed / Businessman / Professional / Agriculturist / Artist / etc ..? ? Non Resident Indian ?? ? Jointly with Spouse / Father / Son or others ???
? ? ? ?
A Firm / Company /Trust / Hospital etc ? A Co-operative Society? Industrial Estate / Builder-Contractor ? And now………. SENIOR CITIZENS
REVERSE MORTGAGE
5
? ? ? ? ? ?
?
? ?
To conform to National Infrastructure Policy Also to Housing and Habitat Policy of GOI Permitted line of developmental activity A modern day retail banking instrument Backed by secure / tangible asset Sentimental loans; Assured repayments Easy to recover dues thro’ legal methods Refinance from NHB and RBI / NABARD Part of Priority Sector Lending (40%)
? Rural : Rs 5 lacs and Urban : Rs. 10 lacs
REVERSE MORTGAGE
6
FDP BU BLR
REVERSE MORTGAGE
7
LIC : Life Insurance Corporation of India GIC : General Insurance Corporation of India CHFS : Co-operative Housing Finance Societies
Households, Corporations, Trusts, Provident Funds
Government of India Reserve Bank of India External Sources
State Governments
LIC/ GIC NHB
Scheduled Banks
State Apex CHFS Housing & Urban Devpt. Corporation Public, Pvt. Agencies/ SHGs/MFIs Housing Finance Companies
Primary CHFS
Households & Corporations
FDP BU BLR REVERSE MORTGAGE 8
?
?
Application ? Enclosures :? Estimate / Land papers / Plans / Designs – approved by Municipal or Town Planning Dept ? Salary Certificate / IT-ST-Wealth Tax Assessment ? Partition / Gift / Sale Deed ? ? Duplicate papers ? In Vernacular Language ? ? Agricultural / Urban Land ? ? Proof of residence ? Guarantors ? ? Builders’ Credentials ?
FDP BU BLR
REVERSE MORTGAGE
9
? ? ? ?
Type of Loan ? Eligibility ? Margin ? Rate of Interest ? Fixed or Floating ? Security ?
? Equitable / Registered (Simple) Mortgage ? ? Third Party Guarantee ? ? NOC / No Dues / Letter of Undertaking ?
FDP BU BLR
REVERSE MORTGAGE
10
FDP BU BLR
REVERSE MORTGAGE
11
? ?
?
Sections 58 a, b and c….. A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. Mortgagor, mortgagee, m-money, m-deed…
FDP BU BLR
REVERSE MORTGAGE
12
FDP BU BLR
REVERSE MORTGAGE
13
FDP BU BLR
REVERSE MORTGAGE
14
S No
Item
March 2004
March 2005
%Variation
01 Housing Loans
02 Consumer Loans 03 Credit Card Dues 04 Other Per. Loans
89,449
6,256 6,167 87,170
1,34,653
3,810 8,405 1,20,120
50.5
-39.1 36.3 37.8
05 Total Retail Lns
06 Total Loans
1,89,041
2,66,988
41.2
27.9
15
8,64,271 11,05,725
07 % of (5) out of (6)
21.9
FDP BU BLR
24.1
REVERSE MORTGAGE
Particulars Retail Loans Housing Agst FDs Cr Cards Education Con Dur’ble Others
Oct 2006 3,98,055 2,09,468 33,744 11,870 12,692 9,291 1,20,990
Dec 2006 4,27,909 2,17,829 35,764 11,913 13,399 8,558 1,40,446
FDP BU BLR
May 2007 4,55,439 2,30,751 39,092 14,221 15,438 8,831 1,47,106
REVERSE MORTGAGE 16
? ? ? ? ? ? ? ? ? ?
What is Reverse Mortgage? Who is the Mortgagor? Who is the Mortgagee? What is being Mortgaged? What is Reverse Mortgage Loan Scheme? Who formulated the Scheme? When? Why? How is it implemented? Who repays the RML? When? How? Which Banks / Others launched it in India? What are the issues? Legal, Taxation, Insurance, Risks..?
FDP BU BLR REVERSE MORTGAGE 17
? ?
Definition : www.investorwords.com An arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender. Also called Reverse-Annuity Mortgage or Home Equity Conversion Mortgage (HECM)
?
FDP BU BLR
REVERSE MORTGAGE
18
Table 1.4 : Population Ageing in Selected Countries
Population (In Millions) % of Population Over 65 Pop’n over 65 (No’s in Mn)
YEAR China
2000 1262
2030 1483
2000 7.0
2030 16.0
2000 88
2030 237
India
USA
1014
276
1437
351
4.6
12.6
9.0
20.0
47
35
129
70
Indonesia
Brazil Russia Japan
225
173 146 127
313
203 133 117
4.5
5.3 12.6 17.0
10.9
13.2 20.5 28.3
10
9 18 22
34
27 27 33
Thailand
France UK S.Korea
61
59 60 47
71
62 61 54
6.4
16.0 15.7 7.0
16.4
24.0 23.5 19.5
4
9 9 3
12
15 14 11
Malaysia
Australia S’pore
22
19 4
35
23 9
4.1
12.4 6.8
9.4
21.1 14.8
FDP BU BLR
1
2 0
3
5 1
REVERSE MORTGAGE 19
Philippine India Malaysia Indonesia Brazil Singapore China Thailand S.Korea USA Russia Australia UK France Germ any Japan
7.7 9 9.4 10.9 13.2 14.8 16 16.4 19.5 20 20.5 21.1 23.5 24 25.8 28.3
2000
2030
0
5
10
15
20
25
30
Source: An Ageing World, 2001, US Census Bureau
FDP BU BLR
REVERSE MORTGAGE
20
Implications for India ? In 2030, 9% of India’s population, or nearly 130 million people, will be over 65 years of age. The population over 60 years of age will approach 200 million in that period
?
By 2030, 237 million people, or 16% of China’s population will be over 65 years of age The vast numbers of elderly adds a human dimension and imposes a significant responsibility on the part of those who are involved in managing retirement funds and systems How Asia addresses the challenge will largely determine how the world will cope with ageing
FDP BU BLR REVERSE MORTGAGE 21
?
?
Indonesia India Philippines Malaysia China Thailand Singapore Japan
16 16 16
17 17 18 19 19 21 22 25
17 16 18
19 21
0
5
10
15
20
25
30
Male
Female
FDP BU BLR
REVERSE MORTGAGE
22
?
?
?
A reverse mortgage is the exact opposite of a normal mortgage transaction (hence the name reverse mortgage) but restricted to a housing property A normal mortgage transaction involves the home being mortgaged by the borrower to the lender as a security for the loan. In a normal mortgage transaction, banks and home finance companies have to consider the borrower's income and repayment capacity to determine the loan amount, duration and the monthly repayment. However, in a reverse mortgage (popular in USA, UK and Canada) the lender instead of
paying upfront, pays the borrower a sum every month
FDP BU BLR
REVERSE MORTGAGE
23
? ? ?
Started in 1980s in USA as “reverse mortgage” known as Home Equity Conversion Mortgage; Providers were Banks and specialist reverse mortgage finance companies;
In UK, it is known as “Equity Release or Home Income Plans” mainly provided by Insurance Companies;
In Canada, both banks and insurance companies are involved.
?
FDP BU BLR
REVERSE MORTGAGE
24
?
? ?
?
? ? ?
Senior Citizens – Old Age Dependency Increase in Longevity and Low Mortality Rising Cost of Good Health Care No proper Social Security Systems Regular Income flow + Pensions (?) Biggest Savings / Asset / Wealth Increase in residential house prices
FDP BU BLR
REVERSE MORTGAGE
25
?
?
?
RML seeks to monetize the house as an asset and specifically the owner’s equity in the house Senior Citizen borrowers (SCB) mortgage the house property to a Public Lending Institution (PLI), who then makes periodic payments to borrowers during the latter’s lifetime SCB not required to service the loan and hence no EMIs – Principal or Interest!
FDP BU BLR
REVERSE MORTGAGE
26
?
? ? ? ?
On borrower’s death or leaving the house property permanently, loan is repaid along with accumulated interest, through sale of the house property SCB/Heirs can prepay the loan with intt. Mortgage on property can be released FM announced in 2007-08 Union Budget NHB issued Guidelines on May 31, 2007
FDP BU BLR
REVERSE MORTGAGE
27
? ? ?
?
? ?
Senior Citizen of India – above 60 years age Married Couples as joint borrowers Should be owner of a self-acquired, self occupied residential property (house or flat) located in India, with clear title of ownership Property should be free from encumbrances Residual life of property be at least 20 years Borrowers should use the property as permanent primary residence
FDP BU BLR
REVERSE MORTGAGE
28
?
Depends on Market Value of Residential Property and prevailing rate of interest
Age 60 – 65 66 – 70 71 – 75
Loan as proportion of Assessed Value of Property 40 % 50 % 60 %
Above 75
70 %
FDP BU BLR REVERSE MORTGAGE 29
?
? ?
?
?
The above table is indicative Banks / PLIs have the discretion Methodology adopted to be disclosed PLI to ensure that Equity of the borrower in the residential property (Equity to Value Ratio – EVR) does not fall below 10% PLI to re-value the mortgage-property at intervals – at least once in every five years
FDP BU BLR
REVERSE MORTGAGE
30
?
Any or Combination of the following:-
?
?
?
Lump-sum payments in one or more tranches Committed Line of Credit, with an availability period agreed upon mutually (Borrower and PLI), to be drawn down by SCB Lump-sum may be conditional and limited to – for medical exigencies, home improvement, maintenance, up-gradation, renovation, extension of residential property – Option given to SCB
? Monthly, Quarterly, Half-Yearly or Annually ? To be decided with prior / mutual consent
FDP BU BLR
REVERSE MORTGAGE
31
?
?
? ? ? ? ?
Upgradation, Renovation and Extension Home improvement, maintenance / insurance of residential property Medical, Emergency expenditure for family For supplementing pension / other income Repayment of an existing loan taken ... Meeting any other genuine need NOT FOR ANY SPECULATIVE PURPOSES
FDP BU BLR
REVERSE MORTGAGE
32
? ? ? ? ? ? ? ?
Period of Loan: Maximum of 15 years Interest Rate: To be fixed by PLI as usual Security: Mortgage of Residential Property COMML. PROPERTY IS NOT ELIGIBLE Valuation: Local Laws to be complied with Assessed by external Approved Valuers Revaluation to be carried out every 5 years Best commercial judgement; no future values
FDP BU BLR
REVERSE MORTGAGE
33
?
? ?
? ?
PLIs to maintain Customer friendly gesture To follow international best practices SCBs to be given three days time after finalisation of RML to cancel transaction Even amount is disbursed, may be repaid Interest for the period may be waived
FDP BU BLR
REVERSE MORTGAGE
34
?
? ?
?
?
Direct to the borrower, except in case of adjustment for existing debts, payments to contractors, of taxes or insurance premium Settlement of dues to other PLIs... Periodicity: Mly, Qly, HYly, Annually - Cash PLI to decide mode of payment, loan tenor, etc depending upon market value, age of borrower and other factors All facts to be disclosed to the borrowers
FDP BU BLR
REVERSE MORTGAGE
35
?
? ? ?
PLIs to provide in writing, a fair and complete package of RML and specimen documents covering all aspects A tool kit with illustrations be prepared Closing charges to be borne by SCBs These are – Appraisal fees, Inspection fees, Verification charges by External firms, Title Examination fees, Legal charges, Stamp Duty and Registration Charges, Property Survey and Valuation Charges, etc...
FDP BU BLR
REVERSE MORTGAGE
36
?
? ? ?
?
Loan becomes due and payable only when the last surviving borrower dies... Or would like to sell the home, etc... Amounts to include accumulated interest SCBs may settle dues without sale of asset Reasonable amount of time, say up to 2 months be provided to settle RML dues Balance / surplus, if any, after settlement of loan be passed on to the estate of borrower
FDP BU BLR
REVERSE MORTGAGE
37
?
Borrower will have option to pre-pay the RML at any time during the loan tenor There will not be any prepayment levy / penalty / charge for such payments
?
FDP BU BLR
REVERSE MORTGAGE
38
?
?
? ?
?
SCB will continue to use the property Non-Recourse Guarantee = No negative equity – SCB will never owe more than net realizable value of the property… Loan Agreement – to be entered into SCB shall not make any testamentary (will) disposition of the property during loan is due Even if done, it is subject to the mortgage…
FDP BU BLR
REVERSE MORTGAGE
39
? ? ?
?
? ?
PLI may obtain a Registered Will Such Will, is the last “WILL” for availing RML and that no other Will be made again SCB to insure property against fire, earthquake and other calamities To pay all taxes, electricity charges, water charges and other statutory payments To maintain the property in good condition PLI reserves the right to inspect property…
FDP BU BLR
REVERSE MORTGAGE
40
? ? ?
?
?
? ?
?
PLI may foreclose the RML for defaults If SCB has not stayed for one year period If SCB fails to pay taxes or maintain or insure the property… If SCB declares himself bankrupt If property is donated or abandoned If ownership changes, rented out, etc… In case of fraud or misrepresentation.. Any statutory action by Govt for taking over the property for public use or for condemning asset
FDP BU BLR
REVERSE MORTGAGE
41
?
PLI has option to revise periodic or lump-sum payments or frequency or intervals on account of revaluation at every 5 years;
Borrower is given option to accept above.. If not acceptable, further payments will be stopped by PLI. Amount outstanding will attract interest at agreed rates;
? ?
FDP BU BLR
REVERSE MORTGAGE
42
? ? ? ? ? ? ? ?
PLI to observe / maintain high standards To disclose all terms without ambiguity To clearly explain all terms / conditions To suggest to SCBs to nominate relatives To counsel possible impacts/ intt. Changes To counsel about possible price changes To specify all the costs associated with RML Take all possible steps to treat SCBs fairly
FDP BU BLR
REVERSE MORTGAGE
43
? ?
?
? ? ? ? ? ?
Age of an Senior Citizen Borrower : 65 years Value of House Property Assessed: Rs 40 Lacs Period for which eligible: 15 Years (180 months) Eligible Amount of Loan: 40% of Market Value Reverse Mortgage Loan: Rs. 16 Lacs Mode of payment : Rs. 8,000 every month Rate of Interest : x% pa (Fixed or Floating?) Total Principal amount received: Rs. 14.40 Lacs Assumption: No effect of changes in value of property during pendency of the loan (15 years)
FDP BU BLR
REVERSE MORTGAGE
44
?
? ?
?
Gross Interest on Rs. 14.40 Lacs – compounded annually : Rs. 21.38 Lacs Total amount due to Bank: Rs. 35.78 Lacs If SCB dies at the end of 15 years, bank sells house property, realises the dues and releases the balance, if any, to legal heirs If Legal Heirs want to retain the property, entire dues of Rs. 35.78 Lacs may be paid to the bank and complete legal formalities.
FDP BU BLR
REVERSE MORTGAGE
45
?
?
? ? ?
?
?
Oct 18, 2004 : Why we need Reverse Mortgage? Article in www.domain-b.com by V Jagannathan August 31, 2006 : Dewan Housing Finance Ltd introduces RML Scheme by name “Saksham” Feb 08, 2007 : XL Dynamics-India Reversesoft Feb 28, 2007 : FM’s 2007-08 Budget Speech Feb 2007 : National Housing Bank prepares Draft Guidelines of Reverse Mortgage Scheme April 14, 2007 : PNB, 1st Public Sector Bank to announce Reverse Mortgage Loans (Baghban) May 2007: NHB Guidelines revised.....
FDP BU BLR REVERSE MORTGAGE 46
? ?
?
? ? ? ?
?
June 5, 2007 : ICICI, BOB and OBC offer RMLs Also to start : Allahabad, Indian & Corp Bank June 15, 2007 : LIC Housing Finance Ltd. June 19, 2007 : Nucleus Software announces new software July 30, 2007 : Union Bank of India to launch July 31, 2007 : Operational Guidelines from NHB to PLIs Oct 12, 2007 : State Bank of India announces Nov 01, 2007 : Central Bank of India launches
FDP BU BLR
REVERSE MORTGAGE
47
doc_137588900.ppt
This PPT includes housing in india, reverse mortgage, rules, financial market, eligibility, demographics
? A basic human necessity supporting economic activities ? Second largest employment generator, next to agriculture. ? Has forward and backward linkages with over 250 ancillary industries. ? Every Rupee spent on construction, an estimated 75-80 paise is added to GDP. ? GOI created enabling Fiscal, Monetary and Legal Environment ? Housing Industry Growth in last 5 years –
3.0 % p.a. Physical Terms Financial Terms 30% p.a.
? Contribution of Housing in GDP is about 6% ? Percentage of Mortgage Debt to GDP is 8.50% (E) in 200506, still way below China’s (12%), Malaysia (22%), HongKong (40%) and US (65%).
REVERSE MORTGAGE
2
?
What is Housing Finance ?
? ? ? ? ? ? ? ? ? Construction of a House / Flat Purchase of land/ ready house / flat Extension of existing house / flat Regn/ Repairs, renovation of a house / flat Furnishing /Insurance / Home Equity/ Rentals Shopping Complex, Schools, Hospitals Co-operative Housing Society, Construction of Workers / Employees Qrtrs And now… REVERSE MORTGAGE LOANS!
REVERSE MORTGAGE
3
? ? ? ? ? ? ? ?
Roti, Kapda aur Makaan ! Build a shelter !! A real saving for any class individual An asset always likely to appreciate Compare with several other savings Easy to acquire, repay and transfer A good tax savings facility A decent line of business in modern days And now RML…. To maintain decent living
REVERSE MORTGAGE
4
?
Any Individual ?
? Salaried/ Self-employed / Businessman / Professional / Agriculturist / Artist / etc ..? ? Non Resident Indian ?? ? Jointly with Spouse / Father / Son or others ???
? ? ? ?
A Firm / Company /Trust / Hospital etc ? A Co-operative Society? Industrial Estate / Builder-Contractor ? And now………. SENIOR CITIZENS
REVERSE MORTGAGE
5
? ? ? ? ? ?
?
? ?
To conform to National Infrastructure Policy Also to Housing and Habitat Policy of GOI Permitted line of developmental activity A modern day retail banking instrument Backed by secure / tangible asset Sentimental loans; Assured repayments Easy to recover dues thro’ legal methods Refinance from NHB and RBI / NABARD Part of Priority Sector Lending (40%)
? Rural : Rs 5 lacs and Urban : Rs. 10 lacs
REVERSE MORTGAGE
6
FDP BU BLR
REVERSE MORTGAGE
7
LIC : Life Insurance Corporation of India GIC : General Insurance Corporation of India CHFS : Co-operative Housing Finance Societies
Households, Corporations, Trusts, Provident Funds
Government of India Reserve Bank of India External Sources
State Governments
LIC/ GIC NHB
Scheduled Banks
State Apex CHFS Housing & Urban Devpt. Corporation Public, Pvt. Agencies/ SHGs/MFIs Housing Finance Companies
Primary CHFS
Households & Corporations
FDP BU BLR REVERSE MORTGAGE 8
?
?
Application ? Enclosures :? Estimate / Land papers / Plans / Designs – approved by Municipal or Town Planning Dept ? Salary Certificate / IT-ST-Wealth Tax Assessment ? Partition / Gift / Sale Deed ? ? Duplicate papers ? In Vernacular Language ? ? Agricultural / Urban Land ? ? Proof of residence ? Guarantors ? ? Builders’ Credentials ?
FDP BU BLR
REVERSE MORTGAGE
9
? ? ? ?
Type of Loan ? Eligibility ? Margin ? Rate of Interest ? Fixed or Floating ? Security ?
? Equitable / Registered (Simple) Mortgage ? ? Third Party Guarantee ? ? NOC / No Dues / Letter of Undertaking ?
FDP BU BLR
REVERSE MORTGAGE
10
FDP BU BLR
REVERSE MORTGAGE
11
? ?
?
Sections 58 a, b and c….. A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. Mortgagor, mortgagee, m-money, m-deed…
FDP BU BLR
REVERSE MORTGAGE
12
FDP BU BLR
REVERSE MORTGAGE
13
FDP BU BLR
REVERSE MORTGAGE
14
S No
Item
March 2004
March 2005
%Variation
01 Housing Loans
02 Consumer Loans 03 Credit Card Dues 04 Other Per. Loans
89,449
6,256 6,167 87,170
1,34,653
3,810 8,405 1,20,120
50.5
-39.1 36.3 37.8
05 Total Retail Lns
06 Total Loans
1,89,041
2,66,988
41.2
27.9
15
8,64,271 11,05,725
07 % of (5) out of (6)
21.9
FDP BU BLR
24.1
REVERSE MORTGAGE
Particulars Retail Loans Housing Agst FDs Cr Cards Education Con Dur’ble Others
Oct 2006 3,98,055 2,09,468 33,744 11,870 12,692 9,291 1,20,990
Dec 2006 4,27,909 2,17,829 35,764 11,913 13,399 8,558 1,40,446
FDP BU BLR
May 2007 4,55,439 2,30,751 39,092 14,221 15,438 8,831 1,47,106
REVERSE MORTGAGE 16
? ? ? ? ? ? ? ? ? ?
What is Reverse Mortgage? Who is the Mortgagor? Who is the Mortgagee? What is being Mortgaged? What is Reverse Mortgage Loan Scheme? Who formulated the Scheme? When? Why? How is it implemented? Who repays the RML? When? How? Which Banks / Others launched it in India? What are the issues? Legal, Taxation, Insurance, Risks..?
FDP BU BLR REVERSE MORTGAGE 17
? ?
Definition : www.investorwords.com An arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender. Also called Reverse-Annuity Mortgage or Home Equity Conversion Mortgage (HECM)
?
FDP BU BLR
REVERSE MORTGAGE
18
Table 1.4 : Population Ageing in Selected Countries
Population (In Millions) % of Population Over 65 Pop’n over 65 (No’s in Mn)
YEAR China
2000 1262
2030 1483
2000 7.0
2030 16.0
2000 88
2030 237
India
USA
1014
276
1437
351
4.6
12.6
9.0
20.0
47
35
129
70
Indonesia
Brazil Russia Japan
225
173 146 127
313
203 133 117
4.5
5.3 12.6 17.0
10.9
13.2 20.5 28.3
10
9 18 22
34
27 27 33
Thailand
France UK S.Korea
61
59 60 47
71
62 61 54
6.4
16.0 15.7 7.0
16.4
24.0 23.5 19.5
4
9 9 3
12
15 14 11
Malaysia
Australia S’pore
22
19 4
35
23 9
4.1
12.4 6.8
9.4
21.1 14.8
FDP BU BLR
1
2 0
3
5 1
REVERSE MORTGAGE 19
Philippine India Malaysia Indonesia Brazil Singapore China Thailand S.Korea USA Russia Australia UK France Germ any Japan
7.7 9 9.4 10.9 13.2 14.8 16 16.4 19.5 20 20.5 21.1 23.5 24 25.8 28.3
2000
2030
0
5
10
15
20
25
30
Source: An Ageing World, 2001, US Census Bureau
FDP BU BLR
REVERSE MORTGAGE
20
Implications for India ? In 2030, 9% of India’s population, or nearly 130 million people, will be over 65 years of age. The population over 60 years of age will approach 200 million in that period
?
By 2030, 237 million people, or 16% of China’s population will be over 65 years of age The vast numbers of elderly adds a human dimension and imposes a significant responsibility on the part of those who are involved in managing retirement funds and systems How Asia addresses the challenge will largely determine how the world will cope with ageing
FDP BU BLR REVERSE MORTGAGE 21
?
?
Indonesia India Philippines Malaysia China Thailand Singapore Japan
16 16 16
17 17 18 19 19 21 22 25
17 16 18
19 21
0
5
10
15
20
25
30
Male
Female
FDP BU BLR
REVERSE MORTGAGE
22
?
?
?
A reverse mortgage is the exact opposite of a normal mortgage transaction (hence the name reverse mortgage) but restricted to a housing property A normal mortgage transaction involves the home being mortgaged by the borrower to the lender as a security for the loan. In a normal mortgage transaction, banks and home finance companies have to consider the borrower's income and repayment capacity to determine the loan amount, duration and the monthly repayment. However, in a reverse mortgage (popular in USA, UK and Canada) the lender instead of
paying upfront, pays the borrower a sum every month
FDP BU BLR
REVERSE MORTGAGE
23
? ? ?
Started in 1980s in USA as “reverse mortgage” known as Home Equity Conversion Mortgage; Providers were Banks and specialist reverse mortgage finance companies;
In UK, it is known as “Equity Release or Home Income Plans” mainly provided by Insurance Companies;
In Canada, both banks and insurance companies are involved.
?
FDP BU BLR
REVERSE MORTGAGE
24
?
? ?
?
? ? ?
Senior Citizens – Old Age Dependency Increase in Longevity and Low Mortality Rising Cost of Good Health Care No proper Social Security Systems Regular Income flow + Pensions (?) Biggest Savings / Asset / Wealth Increase in residential house prices
FDP BU BLR
REVERSE MORTGAGE
25
?
?
?
RML seeks to monetize the house as an asset and specifically the owner’s equity in the house Senior Citizen borrowers (SCB) mortgage the house property to a Public Lending Institution (PLI), who then makes periodic payments to borrowers during the latter’s lifetime SCB not required to service the loan and hence no EMIs – Principal or Interest!
FDP BU BLR
REVERSE MORTGAGE
26
?
? ? ? ?
On borrower’s death or leaving the house property permanently, loan is repaid along with accumulated interest, through sale of the house property SCB/Heirs can prepay the loan with intt. Mortgage on property can be released FM announced in 2007-08 Union Budget NHB issued Guidelines on May 31, 2007
FDP BU BLR
REVERSE MORTGAGE
27
? ? ?
?
? ?
Senior Citizen of India – above 60 years age Married Couples as joint borrowers Should be owner of a self-acquired, self occupied residential property (house or flat) located in India, with clear title of ownership Property should be free from encumbrances Residual life of property be at least 20 years Borrowers should use the property as permanent primary residence
FDP BU BLR
REVERSE MORTGAGE
28
?
Depends on Market Value of Residential Property and prevailing rate of interest
Age 60 – 65 66 – 70 71 – 75
Loan as proportion of Assessed Value of Property 40 % 50 % 60 %
Above 75
70 %
FDP BU BLR REVERSE MORTGAGE 29
?
? ?
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The above table is indicative Banks / PLIs have the discretion Methodology adopted to be disclosed PLI to ensure that Equity of the borrower in the residential property (Equity to Value Ratio – EVR) does not fall below 10% PLI to re-value the mortgage-property at intervals – at least once in every five years
FDP BU BLR
REVERSE MORTGAGE
30
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Any or Combination of the following:-
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Lump-sum payments in one or more tranches Committed Line of Credit, with an availability period agreed upon mutually (Borrower and PLI), to be drawn down by SCB Lump-sum may be conditional and limited to – for medical exigencies, home improvement, maintenance, up-gradation, renovation, extension of residential property – Option given to SCB
? Monthly, Quarterly, Half-Yearly or Annually ? To be decided with prior / mutual consent
FDP BU BLR
REVERSE MORTGAGE
31
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Upgradation, Renovation and Extension Home improvement, maintenance / insurance of residential property Medical, Emergency expenditure for family For supplementing pension / other income Repayment of an existing loan taken ... Meeting any other genuine need NOT FOR ANY SPECULATIVE PURPOSES
FDP BU BLR
REVERSE MORTGAGE
32
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Period of Loan: Maximum of 15 years Interest Rate: To be fixed by PLI as usual Security: Mortgage of Residential Property COMML. PROPERTY IS NOT ELIGIBLE Valuation: Local Laws to be complied with Assessed by external Approved Valuers Revaluation to be carried out every 5 years Best commercial judgement; no future values
FDP BU BLR
REVERSE MORTGAGE
33
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PLIs to maintain Customer friendly gesture To follow international best practices SCBs to be given three days time after finalisation of RML to cancel transaction Even amount is disbursed, may be repaid Interest for the period may be waived
FDP BU BLR
REVERSE MORTGAGE
34
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Direct to the borrower, except in case of adjustment for existing debts, payments to contractors, of taxes or insurance premium Settlement of dues to other PLIs... Periodicity: Mly, Qly, HYly, Annually - Cash PLI to decide mode of payment, loan tenor, etc depending upon market value, age of borrower and other factors All facts to be disclosed to the borrowers
FDP BU BLR
REVERSE MORTGAGE
35
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PLIs to provide in writing, a fair and complete package of RML and specimen documents covering all aspects A tool kit with illustrations be prepared Closing charges to be borne by SCBs These are – Appraisal fees, Inspection fees, Verification charges by External firms, Title Examination fees, Legal charges, Stamp Duty and Registration Charges, Property Survey and Valuation Charges, etc...
FDP BU BLR
REVERSE MORTGAGE
36
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Loan becomes due and payable only when the last surviving borrower dies... Or would like to sell the home, etc... Amounts to include accumulated interest SCBs may settle dues without sale of asset Reasonable amount of time, say up to 2 months be provided to settle RML dues Balance / surplus, if any, after settlement of loan be passed on to the estate of borrower
FDP BU BLR
REVERSE MORTGAGE
37
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Borrower will have option to pre-pay the RML at any time during the loan tenor There will not be any prepayment levy / penalty / charge for such payments
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FDP BU BLR
REVERSE MORTGAGE
38
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SCB will continue to use the property Non-Recourse Guarantee = No negative equity – SCB will never owe more than net realizable value of the property… Loan Agreement – to be entered into SCB shall not make any testamentary (will) disposition of the property during loan is due Even if done, it is subject to the mortgage…
FDP BU BLR
REVERSE MORTGAGE
39
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PLI may obtain a Registered Will Such Will, is the last “WILL” for availing RML and that no other Will be made again SCB to insure property against fire, earthquake and other calamities To pay all taxes, electricity charges, water charges and other statutory payments To maintain the property in good condition PLI reserves the right to inspect property…
FDP BU BLR
REVERSE MORTGAGE
40
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PLI may foreclose the RML for defaults If SCB has not stayed for one year period If SCB fails to pay taxes or maintain or insure the property… If SCB declares himself bankrupt If property is donated or abandoned If ownership changes, rented out, etc… In case of fraud or misrepresentation.. Any statutory action by Govt for taking over the property for public use or for condemning asset
FDP BU BLR
REVERSE MORTGAGE
41
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PLI has option to revise periodic or lump-sum payments or frequency or intervals on account of revaluation at every 5 years;
Borrower is given option to accept above.. If not acceptable, further payments will be stopped by PLI. Amount outstanding will attract interest at agreed rates;
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FDP BU BLR
REVERSE MORTGAGE
42
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PLI to observe / maintain high standards To disclose all terms without ambiguity To clearly explain all terms / conditions To suggest to SCBs to nominate relatives To counsel possible impacts/ intt. Changes To counsel about possible price changes To specify all the costs associated with RML Take all possible steps to treat SCBs fairly
FDP BU BLR
REVERSE MORTGAGE
43
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Age of an Senior Citizen Borrower : 65 years Value of House Property Assessed: Rs 40 Lacs Period for which eligible: 15 Years (180 months) Eligible Amount of Loan: 40% of Market Value Reverse Mortgage Loan: Rs. 16 Lacs Mode of payment : Rs. 8,000 every month Rate of Interest : x% pa (Fixed or Floating?) Total Principal amount received: Rs. 14.40 Lacs Assumption: No effect of changes in value of property during pendency of the loan (15 years)
FDP BU BLR
REVERSE MORTGAGE
44
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Gross Interest on Rs. 14.40 Lacs – compounded annually : Rs. 21.38 Lacs Total amount due to Bank: Rs. 35.78 Lacs If SCB dies at the end of 15 years, bank sells house property, realises the dues and releases the balance, if any, to legal heirs If Legal Heirs want to retain the property, entire dues of Rs. 35.78 Lacs may be paid to the bank and complete legal formalities.
FDP BU BLR
REVERSE MORTGAGE
45
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Oct 18, 2004 : Why we need Reverse Mortgage? Article in www.domain-b.com by V Jagannathan August 31, 2006 : Dewan Housing Finance Ltd introduces RML Scheme by name “Saksham” Feb 08, 2007 : XL Dynamics-India Reversesoft Feb 28, 2007 : FM’s 2007-08 Budget Speech Feb 2007 : National Housing Bank prepares Draft Guidelines of Reverse Mortgage Scheme April 14, 2007 : PNB, 1st Public Sector Bank to announce Reverse Mortgage Loans (Baghban) May 2007: NHB Guidelines revised.....
FDP BU BLR REVERSE MORTGAGE 46
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June 5, 2007 : ICICI, BOB and OBC offer RMLs Also to start : Allahabad, Indian & Corp Bank June 15, 2007 : LIC Housing Finance Ltd. June 19, 2007 : Nucleus Software announces new software July 30, 2007 : Union Bank of India to launch July 31, 2007 : Operational Guidelines from NHB to PLIs Oct 12, 2007 : State Bank of India announces Nov 01, 2007 : Central Bank of India launches
FDP BU BLR
REVERSE MORTGAGE
47
doc_137588900.ppt