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REVERSE MORTGAGE Have the Cake and Eat it too PROF CHOWDARI PRASAD
Housing in India <ul><ul><li>A basic human necessity supporting economic activities  </li></ul></ul><ul><ul><li>Second lar...
Introduction <ul><li>What is Housing Finance ? </li></ul><ul><ul><li>Construction of a House / Flat </li></ul></ul><ul><ul...
Why take a Housing Loan ? <ul><li>Roti, Kapda aur Makaan !  Build a shelter !! </li></ul><ul><li>A real saving for any cla...
Who can be Applicant ? <ul><li>Any Individual ?  </li></ul><ul><ul><li>Salaried/ Self-employed  / Businessman / Profession...
Why H F by Banks in India ? <ul><li>To conform to National Infrastructure Policy </li></ul><ul><li>Also to Housing and Hab...
REVERSE MORTGAGE FDP BU BLR
HOUSING FINANCE MARKET REVERSE MORTGAGE FDP BU BLR Households, Corporations, Trusts, Provident Funds Government of India R...
What formalities ? <ul><li>Application ? </li></ul><ul><li>Enclosures :- </li></ul><ul><ul><li>Estimate / Land papers / Pl...
How much? <ul><li>Type of Loan ?  </li></ul><ul><li>Eligibility ? Margin ?  </li></ul><ul><li>Rate of Interest ?  Fixed or...
MORTGAGE – Transfer of Interest in an immovable asset viz., land, building, etc REVERSE MORTGAGE FDP BU BLR
Transfer of Property Act, 1882 <ul><li>Sections 58 a, b and c….. </li></ul><ul><li>A mortgage is the transfer of an intere...
REVERSE MORTGAGE FDP BU BLR
REVERSE MORTGAGE FDP BU BLR
Table 1.2 -Retail Portfolio of Banks (Amt in Rs Crs) – T&P OF BKG IN INDIA 2005 REVERSE MORTGAGE FDP BU BLR S No Item Marc...
Table 1.3 - Personal Loans  (ET dt August 17, 2007)  Rs Crs REVERSE MORTGAGE FDP BU BLR Particulars Oct 2006 Dec 2006 May ...
EGAGTROM ESREVER? <ul><li>What is Reverse Mortgage? </li></ul><ul><li>Who is the Mortgagor? </li></ul><ul><li>Who is the M...
What is Reverse Mortgage? <ul><li>Definition  :  www.investorwords.com </li></ul><ul><li>An arrangement in which a homeown...
REVERSE MORTGAGE FDP BU BLR Table 1.4 : Population Ageing in Selected Countries Population (In Millions) % of Population O...
Proportion of  Elderly in Population REVERSE MORTGAGE FDP BU BLR Source: An  Ageing World, 2001, US Census Bureau
Demographic Trends <ul><li>In 2030, 9% of India’s population, or  nearly 130 million people, will be over 65 years of age....
Life Expectancy at age 60: Selected Asian Countries ( Source: Adopted from Chakraborty (2004) ) REVERSE MORTGAGE FDP BU BLR
RML is ................. <ul><li>A reverse mortgage is the  exact opposite  of a normal mortgage transaction (hence the na...
RML – History  <ul><li>Started in 1980s in USA as “reverse mortgage” known as Home Equity Conversion Mortgage; </li></ul><...
Origin of RML Scheme <ul><li>Senior Citizens – Old Age Dependency </li></ul><ul><li>Increase in Longevity and Low Mortalit...
What is RML?/1 <ul><li>RML seeks to monetize the house as an asset and specifically the owner’s equity in the house </li><...
What is RML?/2 <ul><li>On borrower’s death or leaving the house property permanently, loan is repaid along with accumulate...
Eligibility of Borrowers <ul><li>Senior Citizen of India – above 60 years age </li></ul><ul><li>Married Couples as joint b...
Eligible Amount of RM Loan/1 <ul><li>Depends on Market Value of Residential Property and prevailing rate of interest </li>...
Eligible Amount of RM Loan/2 <ul><li>The above table is indicative </li></ul><ul><li>Banks / PLIs have the discretion </li...
Nature of Payment <ul><li>Any or Combination of the following:- </li></ul><ul><ul><li>Monthly, Quarterly, Half-Yearly or A...
Eligible End Use of Funds <ul><li>Upgradation, Renovation and Extension </li></ul><ul><li>Home improvement, maintenance / ...
OTHER TERMS <ul><li>Period of Loan: Maximum of 15 years </li></ul><ul><li>Interest Rate: To be fixed by PLI as usual </li>...
Right to Rescission <ul><li>PLIs to maintain Customer friendly gesture </li></ul><ul><li>To follow international best prac...
RM Loan Disbursement <ul><li>Direct to the borrower, except in case of adjustment for existing debts, payments to contract...
Closing <ul><li>PLIs to provide in writing, a fair and complete package of RML and specimen documents covering all aspects...
Settlement of RM Loan <ul><li>Loan becomes due and payable only when the last surviving borrower dies... Or would like to ...
Pre-payment of RM Loan <ul><li>Borrower will have option to pre-pay the RML at any time during the loan tenor </li></ul><u...
RM Loan Covenants/1 <ul><li>SCB will continue to use the property </li></ul><ul><li>Non-Recourse Guarantee = No negative e...
RM Loan Covenants/2 <ul><li>PLI may obtain a Registered Will </li></ul><ul><li>Such Will, is the last “WILL” for availing ...
Foreclosure <ul><li>PLI may foreclose the RML for defaults </li></ul><ul><li>If SCB has not stayed for one year period </l...
Option to adjust Payments <ul><li>PLI has option to revise periodic or lump-sum payments or frequency or intervals on acco...
Counseling and  Information to Borrowers <ul><li>PLI to observe / maintain high standards </li></ul><ul><li>To disclose al...
Illustration/1 <ul><li>Age of an Senior Citizen Borrower : 65 years </li></ul><ul><li>Value of House Property Assessed: Rs...
Illustration/2 <ul><li>Gross Interest on Rs. 14.40 Lacs – compounded annually : Rs. 21.38 Lacs </li></ul><ul><li>Total amo...
RML in India/1 <ul><li>Oct 18, 2004 : Why we need Reverse Mortgage? Article in  www.domain-b.com  by V Jagannathan </li></...
RML in India/2 <ul><li>June 5, 2007 : ICICI, BOB and OBC offer RMLs </li></ul><ul><li>Also to start : Allahabad, Indian & ...
References <ul><li>www.nhb.org.in ;  www.domain-b.com ;  </li></ul><ul><li>www.google.com ;  www.rediff.com </li></ul><ul>...
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Reverse Mortgage in India

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Reverse Mortgage is relatively a new concept in Indian market. An initiative by RBI, Govt of India, NHB and others to support the senior citizens. This is a class room presentation made by Prof Chowdari Prasad to MBA (Finance) students. Suggestions are most welcome

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  • Dear Sir,

    Reverse Mortgage Loans
    Purchase a second Home with Loan Proceeds from Reverse Mortgage
    HECM
    .
    My age is 72 Years & my wife’s age is 62 Years. I intend to avail reverse mortgage loan on my own home. The title deeds of the home are in my name. Please let me know whether the loan proceeds of Reverse Mortgage Loan can be used to buy a second home.

    Yours faithfully,

    (Gopal Ji Tandon)
    C-14 Dev Vihar MDA Colony,
    Moradabad.
    Mob- 9548982329
    Phone- 05912435713





    gopal_ji_tandon@live.com
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Transcript of "Reverse Mortgage in India"

  1. 1. REVERSE MORTGAGE Have the Cake and Eat it too PROF CHOWDARI PRASAD
  2. 2. Housing in India <ul><ul><li>A basic human necessity supporting economic activities </li></ul></ul><ul><ul><li>Second largest employment generator, next to agriculture. </li></ul></ul><ul><ul><li>Has forward and backward linkages with over 250 ancillary industries. </li></ul></ul><ul><ul><li>Every Rupee spent on construction, an estimated 75-80 paise is added to GDP. </li></ul></ul><ul><ul><li>GOI created enabling Fiscal, Monetary and Legal Environment </li></ul></ul><ul><ul><li>Housing Industry Growth in last 5 years – </li></ul></ul><ul><ul><li>Physical Terms 3.0 % p.a. </li></ul></ul><ul><ul><li>Financial Terms 30% p.a. </li></ul></ul><ul><ul><li>Contribution of Housing in GDP is about 6% </li></ul></ul><ul><ul><li>Percentage of Mortgage Debt to GDP is 8.50% (E) in 2005-06, still way below China’s (12%), Malaysia (22%), Hong-Kong (40%) and US (65%). </li></ul></ul>REVERSE MORTGAGE FDP BU BLR
  3. 3. Introduction <ul><li>What is Housing Finance ? </li></ul><ul><ul><li>Construction of a House / Flat </li></ul></ul><ul><ul><li>Purchase of land/ ready house / flat </li></ul></ul><ul><ul><li>Extension of existing house / flat </li></ul></ul><ul><ul><li>Regn/ Repairs, renovation of a house / flat </li></ul></ul><ul><ul><li>Furnishing /Insurance / Home Equity/ Rentals </li></ul></ul><ul><ul><li>Shopping Complex, Schools, Hospitals </li></ul></ul><ul><ul><li>Co-operative Housing Society, </li></ul></ul><ul><ul><li>Construction of Workers / Employees Qrtrs </li></ul></ul><ul><ul><li>And now… REVERSE MORTGAGE LOANS! </li></ul></ul>REVERSE MORTGAGE FDP BU BLR
  4. 4. Why take a Housing Loan ? <ul><li>Roti, Kapda aur Makaan ! Build a shelter !! </li></ul><ul><li>A real saving for any class individual </li></ul><ul><li>An asset always likely to appreciate </li></ul><ul><li>Compare with several other savings </li></ul><ul><li>Easy to acquire, repay and transfer </li></ul><ul><li>A good tax savings facility </li></ul><ul><li>A decent line of business in modern days </li></ul><ul><li>And now RML…. To maintain decent living </li></ul>REVERSE MORTGAGE FDP BU BLR
  5. 5. Who can be Applicant ? <ul><li>Any Individual ? </li></ul><ul><ul><li>Salaried/ Self-employed / Businessman / Professional / Agriculturist / Artist / etc ..? </li></ul></ul><ul><ul><li>Non Resident Indian ?? </li></ul></ul><ul><ul><li>Jointly with Spouse / Father / Son or others ??? </li></ul></ul><ul><li>A Firm / Company /Trust / Hospital etc ? </li></ul><ul><li>A Co-operative Society? </li></ul><ul><li>Industrial Estate / Builder-Contractor ? </li></ul><ul><li>And now………. SENIOR CITIZENS </li></ul>REVERSE MORTGAGE FDP BU BLR
  6. 6. Why H F by Banks in India ? <ul><li>To conform to National Infrastructure Policy </li></ul><ul><li>Also to Housing and Habitat Policy of GOI </li></ul><ul><li>Permitted line of developmental activity </li></ul><ul><li>A modern day retail banking instrument </li></ul><ul><li>Backed by secure / tangible asset </li></ul><ul><li>Sentimental loans; Assured repayments </li></ul><ul><li>Easy to recover dues thro’ legal methods </li></ul><ul><li>Refinance from NHB and RBI / NABARD </li></ul><ul><li>Part of Priority Sector Lending (40%) </li></ul><ul><ul><li>Rural : Rs 5 lacs and Urban : Rs. 10 lacs </li></ul></ul>REVERSE MORTGAGE FDP BU BLR
  7. 7. REVERSE MORTGAGE FDP BU BLR
  8. 8. HOUSING FINANCE MARKET REVERSE MORTGAGE FDP BU BLR Households, Corporations, Trusts, Provident Funds Government of India Reserve Bank of India External Sources N H B Scheduled Banks LIC : Life Insurance Corporation of India GIC : General Insurance Corporation of India CHFS : Co-operative Housing Finance Societies Households & Corporations Housing Finance Companies LIC/ GIC State Governments Housing & Urban Devpt. Corporation State Apex CHFS Primary CHFS Public, Pvt. Agencies/ SHGs/MFIs
  9. 9. What formalities ? <ul><li>Application ? </li></ul><ul><li>Enclosures :- </li></ul><ul><ul><li>Estimate / Land papers / Plans / Designs – approved by Municipal or Town Planning Dept </li></ul></ul><ul><ul><li>Salary Certificate / IT-ST-Wealth Tax Assessment </li></ul></ul><ul><ul><li>Partition / Gift / Sale Deed ? </li></ul></ul><ul><ul><li>Duplicate papers ? In Vernacular Language ? </li></ul></ul><ul><ul><li>Agricultural / Urban Land ? </li></ul></ul><ul><ul><li>Proof of residence ? Guarantors ? </li></ul></ul><ul><ul><li>Builders’ Credentials ? </li></ul></ul>REVERSE MORTGAGE FDP BU BLR
  10. 10. How much? <ul><li>Type of Loan ? </li></ul><ul><li>Eligibility ? Margin ? </li></ul><ul><li>Rate of Interest ? Fixed or Floating ? </li></ul><ul><li>Security ? </li></ul><ul><ul><li>Equitable / Registered (Simple) Mortgage ? </li></ul></ul><ul><ul><li>Third Party Guarantee ? </li></ul></ul><ul><ul><li>NOC / No Dues / Letter of Undertaking ? </li></ul></ul>REVERSE MORTGAGE FDP BU BLR
  11. 11. MORTGAGE – Transfer of Interest in an immovable asset viz., land, building, etc REVERSE MORTGAGE FDP BU BLR
  12. 12. Transfer of Property Act, 1882 <ul><li>Sections 58 a, b and c….. </li></ul><ul><li>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. </li></ul><ul><li>Mortgagor, mortgagee, m-money, m-deed… </li></ul>REVERSE MORTGAGE FDP BU BLR
  13. 13. REVERSE MORTGAGE FDP BU BLR
  14. 14. REVERSE MORTGAGE FDP BU BLR
  15. 15. Table 1.2 -Retail Portfolio of Banks (Amt in Rs Crs) – T&P OF BKG IN INDIA 2005 REVERSE MORTGAGE FDP BU BLR S No Item March 2004 March 2005 %Vari- ation 01 Housing Loans 89,449 1,34,653 50.5 02 Consumer Loans 6,256 3,810 -39.1 03 Credit Card Dues 6,167 8,405 36.3 04 Other Per. Loans 87,170 1,20,120 37.8 05 Total Retail Lns 1,89,041 2,66,988 41.2 06 Total Loans 8,64,271 11,05,725 27.9 07 % of (5) out of (6) 21.9 24.1
  16. 16. Table 1.3 - Personal Loans (ET dt August 17, 2007) Rs Crs REVERSE MORTGAGE FDP BU BLR Particulars Oct 2006 Dec 2006 May 2007 Retail Loans 3,98,055 4,27,909 4,55,439 Housing 2,09,468 2,17,829 2,30,751 Agst FDs 33,744 35,764 39,092 Cr Cards 11,870 11,913 14,221 Education 12,692 13,399 15,438 Con Dur’ble 9,291 8,558 8,831 Others 1,20,990 1,40,446 1,47,106
  17. 17. EGAGTROM ESREVER? <ul><li>What is Reverse Mortgage? </li></ul><ul><li>Who is the Mortgagor? </li></ul><ul><li>Who is the Mortgagee? </li></ul><ul><li>What is being Mortgaged? </li></ul><ul><li>What is Reverse Mortgage Loan Scheme? </li></ul><ul><li>Who formulated the Scheme? When? Why? </li></ul><ul><li>How is it implemented? </li></ul><ul><li>Who repays the RML? When? How? </li></ul><ul><li>Which Banks / Others launched it in India? </li></ul><ul><li>What are the issues? Legal, Taxation, Insurance, Risks..? </li></ul>REVERSE MORTGAGE FDP BU BLR
  18. 18. What is Reverse Mortgage? <ul><li>Definition : www.investorwords.com </li></ul><ul><li>An arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender . </li></ul><ul><li>Also called Reverse-Annuity Mortgage or Home Equity Conversion Mortgage (HECM) </li></ul>REVERSE MORTGAGE FDP BU BLR
  19. 19. REVERSE MORTGAGE FDP BU BLR Table 1.4 : Population Ageing in Selected Countries Population (In Millions) % of Population Over 65 Pop’n over 65 (No’s in Mn)   YEAR 2000 2030 2000 2030 2000 2030 China 1262 1483 7.0 16.0 88 237 India 1014 1437 4.6 9.0 47 129 USA 276 351 12.6 20.0 35 70 Indonesia 225 313 4.5 10.9 10 34 Brazil 173 203 5.3 13.2 9 27 Russia 146 133 12.6 20.5 18 27 Japan 127 117 17.0 28.3 22 33 Thailand 61 71 6.4 16.4 4 12 France 59 62 16.0 24.0 9 15 UK 60 61 15.7 23.5 9 14 S.Korea 47 54 7.0 19.5 3 11 Malaysia 22 35 4.1 9.4 1 3 Australia 19 23 12.4 21.1 2 5 S’pore 4 9 6.8 14.8 0 1
  20. 20. Proportion of Elderly in Population REVERSE MORTGAGE FDP BU BLR Source: An Ageing World, 2001, US Census Bureau
  21. 21. Demographic Trends <ul><li>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 </li></ul><ul><li>By 2030, 237 million people, or 16% of China’s population will be over 65 years of age </li></ul><ul><li>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 </li></ul><ul><li>How Asia addresses the challenge will largely determine how the world will cope with ageing </li></ul>REVERSE MORTGAGE FDP BU BLR Implications for India
  22. 22. Life Expectancy at age 60: Selected Asian Countries ( Source: Adopted from Chakraborty (2004) ) REVERSE MORTGAGE FDP BU BLR
  23. 23. RML is ................. <ul><li>A reverse mortgage is the exact opposite of a normal mortgage transaction (hence the name reverse mortgage) but restricted to a housing property </li></ul><ul><li>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 . </li></ul><ul><li>However, in a reverse mortgage (popular in USA, UK and Canada) the lender instead of paying upfront, pays the borrower a sum every month </li></ul>REVERSE MORTGAGE FDP BU BLR
  24. 24. RML – History <ul><li>Started in 1980s in USA as “reverse mortgage” known as Home Equity Conversion Mortgage; </li></ul><ul><li>Providers were Banks and specialist reverse mortgage finance companies; </li></ul><ul><li>In UK, it is known as “Equity Release or Home Income Plans” mainly provided by Insurance Companies; </li></ul><ul><li>In Canada, both banks and insurance companies are involved . </li></ul>REVERSE MORTGAGE FDP BU BLR
  25. 25. Origin of RML Scheme <ul><li>Senior Citizens – Old Age Dependency </li></ul><ul><li>Increase in Longevity and Low Mortality </li></ul><ul><li>Rising Cost of Good Health Care </li></ul><ul><li>No proper Social Security Systems </li></ul><ul><li>Regular Income flow + Pensions (?) </li></ul><ul><li>Biggest Savings / Asset / Wealth </li></ul><ul><li>Increase in residential house prices </li></ul>REVERSE MORTGAGE FDP BU BLR
  26. 26. What is RML?/1 <ul><li>RML seeks to monetize the house as an asset and specifically the owner’s equity in the house </li></ul><ul><li>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 </li></ul><ul><li>SCB not required to service the loan and hence no EMIs – Principal or Interest! </li></ul>REVERSE MORTGAGE FDP BU BLR
  27. 27. What is RML?/2 <ul><li>On borrower’s death or leaving the house property permanently, loan is repaid along with accumulated interest, through sale of the house property </li></ul><ul><li>SCB/Heirs can prepay the loan with intt. </li></ul><ul><li>Mortgage on property can be released </li></ul><ul><li>FM announced in 2007-08 Union Budget </li></ul><ul><li>NHB issued Guidelines on May 31, 2007 </li></ul>REVERSE MORTGAGE FDP BU BLR
  28. 28. Eligibility of Borrowers <ul><li>Senior Citizen of India – above 60 years age </li></ul><ul><li>Married Couples as joint borrowers </li></ul><ul><li>Should be owner of a self-acquired, self occupied residential property (house or flat) located in India, with clear title of ownership </li></ul><ul><li>Property should be free from encumbrances </li></ul><ul><li>Residual life of property be at least 20 years </li></ul><ul><li>Borrowers should use the property as permanent primary residence </li></ul>REVERSE MORTGAGE FDP BU BLR
  29. 29. Eligible Amount of RM Loan/1 <ul><li>Depends on Market Value of Residential Property and prevailing rate of interest </li></ul>REVERSE MORTGAGE FDP BU BLR Age Loan as proportion of Assessed Value of Property 60 – 65 40 % 66 – 70 50 % 71 – 75 60 % Above 75 70 %
  30. 30. Eligible Amount of RM Loan/2 <ul><li>The above table is indicative </li></ul><ul><li>Banks / PLIs have the discretion </li></ul><ul><li>Methodology adopted to be disclosed </li></ul><ul><li>PLI to ensure that Equity of the borrower in the residential property (Equity to Value Ratio – EVR) does not fall below 10% </li></ul><ul><li>PLI to re-value the mortgage-property at intervals – at least once in every five years </li></ul>REVERSE MORTGAGE FDP BU BLR
  31. 31. Nature of Payment <ul><li>Any or Combination of the following:- </li></ul><ul><ul><li>Monthly, Quarterly, Half-Yearly or Annually </li></ul></ul><ul><ul><li>To be decided with prior / mutual consent </li></ul></ul><ul><li>Lump-sum payments in one or more tranches </li></ul><ul><li>Committed Line of Credit, with an availability period agreed upon mutually (Borrower and PLI), to be drawn down by SCB </li></ul><ul><li>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 </li></ul>REVERSE MORTGAGE FDP BU BLR
  32. 32. Eligible End Use of Funds <ul><li>Upgradation, Renovation and Extension </li></ul><ul><li>Home improvement, maintenance / insurance of residential property </li></ul><ul><li>Medical, Emergency expenditure for family </li></ul><ul><li>For supplementing pension / other income </li></ul><ul><li>Repayment of an existing loan taken ... </li></ul><ul><li>Meeting any other genuine need </li></ul><ul><li>NOT FOR ANY SPECULATIVE PURPOSES </li></ul>REVERSE MORTGAGE FDP BU BLR
  33. 33. OTHER TERMS <ul><li>Period of Loan: Maximum of 15 years </li></ul><ul><li>Interest Rate: To be fixed by PLI as usual </li></ul><ul><li>Security: Mortgage of Residential Property </li></ul><ul><li>COMML. PROPERTY IS NOT ELIGIBLE </li></ul><ul><li>Valuation: Local Laws to be complied with </li></ul><ul><li>Assessed by external Approved Valuers </li></ul><ul><li>Revaluation to be carried out every 5 years </li></ul><ul><li>Best commercial judgement; no future values </li></ul>REVERSE MORTGAGE FDP BU BLR
  34. 34. Right to Rescission <ul><li>PLIs to maintain Customer friendly gesture </li></ul><ul><li>To follow international best practices </li></ul><ul><li>SCBs to be given three days time after finalisation of RML to cancel transaction </li></ul><ul><li>Even amount is disbursed, may be repaid </li></ul><ul><li>Interest for the period may be waived </li></ul>REVERSE MORTGAGE FDP BU BLR
  35. 35. RM Loan Disbursement <ul><li>Direct to the borrower, except in case of adjustment for existing debts, payments to contractors, of taxes or insurance premium </li></ul><ul><li>Settlement of dues to other PLIs... </li></ul><ul><li>Periodicity: Mly, Qly, HYly, Annually - Cash </li></ul><ul><li>PLI to decide mode of payment, loan tenor, etc depending upon market value, age of borrower and other factors </li></ul><ul><li>All facts to be disclosed to the borrowers </li></ul>REVERSE MORTGAGE FDP BU BLR
  36. 36. Closing <ul><li>PLIs to provide in writing, a fair and complete package of RML and specimen documents covering all aspects </li></ul><ul><li>A tool kit with illustrations be prepared </li></ul><ul><li>Closing charges to be borne by SCBs </li></ul><ul><li>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... </li></ul>REVERSE MORTGAGE FDP BU BLR
  37. 37. Settlement of RM Loan <ul><li>Loan becomes due and payable only when the last surviving borrower dies... Or would like to sell the home, etc... </li></ul><ul><li>Amounts to include accumulated interest </li></ul><ul><li>SCBs may settle dues without sale of asset </li></ul><ul><li>Reasonable amount of time, say up to 2 months be provided to settle RML dues </li></ul><ul><li>Balance / surplus, if any, after settlement of loan be passed on to the estate of borrower </li></ul>REVERSE MORTGAGE FDP BU BLR
  38. 38. Pre-payment of RM Loan <ul><li>Borrower will have option to pre-pay the RML at any time during the loan tenor </li></ul><ul><li>There will not be any prepayment levy / penalty / charge for such payments </li></ul>REVERSE MORTGAGE FDP BU BLR
  39. 39. RM Loan Covenants/1 <ul><li>SCB will continue to use the property </li></ul><ul><li>Non-Recourse Guarantee = No negative equity – SCB will never owe more than net realizable value of the property… </li></ul><ul><li>Loan Agreement – to be entered into </li></ul><ul><li>SCB shall not make any testamentary (will) disposition of the property during loan is due </li></ul><ul><li>Even if done, it is subject to the mortgage… </li></ul>REVERSE MORTGAGE FDP BU BLR
  40. 40. RM Loan Covenants/2 <ul><li>PLI may obtain a Registered Will </li></ul><ul><li>Such Will, is the last “WILL” for availing RML and that no other Will be made again </li></ul><ul><li>SCB to insure property against fire, earthquake and other calamities </li></ul><ul><li>To pay all taxes, electricity charges, water charges and other statutory payments </li></ul><ul><li>To maintain the property in good condition </li></ul><ul><li>PLI reserves the right to inspect property… </li></ul>REVERSE MORTGAGE FDP BU BLR
  41. 41. Foreclosure <ul><li>PLI may foreclose the RML for defaults </li></ul><ul><li>If SCB has not stayed for one year period </li></ul><ul><li>If SCB fails to pay taxes or maintain or insure the property… </li></ul><ul><li>If SCB declares himself bankrupt </li></ul><ul><li>If property is donated or abandoned </li></ul><ul><li>If ownership changes, rented out, etc… </li></ul><ul><li>In case of fraud or misrepresentation.. </li></ul><ul><li>Any statutory action by Govt for taking over the property for public use or for condemning asset </li></ul>REVERSE MORTGAGE FDP BU BLR
  42. 42. Option to adjust Payments <ul><li>PLI has option to revise periodic or lump-sum payments or frequency or intervals on account of revaluation at every 5 years; </li></ul><ul><li>Borrower is given option to accept above.. </li></ul><ul><li>If not acceptable, further payments will be stopped by PLI. Amount outstanding will attract interest at agreed rates; </li></ul>REVERSE MORTGAGE FDP BU BLR
  43. 43. Counseling and Information to Borrowers <ul><li>PLI to observe / maintain high standards </li></ul><ul><li>To disclose all terms without ambiguity </li></ul><ul><li>To clearly explain all terms / conditions </li></ul><ul><li>To suggest to SCBs to nominate relatives </li></ul><ul><li>To counsel possible impacts/ intt. Changes </li></ul><ul><li>To counsel about possible price changes </li></ul><ul><li>To specify all the costs associated with RML </li></ul><ul><li>Take all possible steps to treat SCBs fairly </li></ul>REVERSE MORTGAGE FDP BU BLR
  44. 44. Illustration/1 <ul><li>Age of an Senior Citizen Borrower : 65 years </li></ul><ul><li>Value of House Property Assessed: Rs 40 Lacs </li></ul><ul><li>Period for which eligible: 15 Years (180 months) </li></ul><ul><li>Eligible Amount of Loan: 40% of Market Value </li></ul><ul><li>Reverse Mortgage Loan: Rs. 16 Lacs </li></ul><ul><li>Mode of payment : Rs. 8,000 every month </li></ul><ul><li>Rate of Interest : x% pa (Fixed or Floating?) </li></ul><ul><li>Total Principal amount received: Rs. 14.40 Lacs </li></ul><ul><li>Assumption : No effect of changes in value of property during pendency of the loan (15 years) </li></ul>REVERSE MORTGAGE FDP BU BLR
  45. 45. Illustration/2 <ul><li>Gross Interest on Rs. 14.40 Lacs – compounded annually : Rs. 21.38 Lacs </li></ul><ul><li>Total amount due to Bank: Rs. 35.78 Lacs </li></ul><ul><li>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 </li></ul><ul><li>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. </li></ul>REVERSE MORTGAGE FDP BU BLR
  46. 46. RML in India/1 <ul><li>Oct 18, 2004 : Why we need Reverse Mortgage? Article in www.domain-b.com by V Jagannathan </li></ul><ul><li>August 31, 2006 : Dewan Housing Finance Ltd introduces RML Scheme by name “Saksham” </li></ul><ul><li>Feb 08, 2007 : XL Dynamics-India Reversesoft </li></ul><ul><li>Feb 28, 2007 : FM’s 2007-08 Budget Speech </li></ul><ul><li>Feb 2007 : National Housing Bank prepares Draft Guidelines of Reverse Mortgage Scheme </li></ul><ul><li>April 14, 2007 : PNB, 1st Public Sector Bank to announce Reverse Mortgage Loans (Baghban) </li></ul><ul><li>May 2007: NHB Guidelines revised..... </li></ul>REVERSE MORTGAGE FDP BU BLR
  47. 47. RML in India/2 <ul><li>June 5, 2007 : ICICI, BOB and OBC offer RMLs </li></ul><ul><li>Also to start : Allahabad, Indian & Corp Bank </li></ul><ul><li>June 15, 2007 : LIC Housing Finance Ltd. </li></ul><ul><li>June 19, 2007 : Nucleus Software announces new software </li></ul><ul><li>July 30, 2007 : Union Bank of India to launch </li></ul><ul><li>July 31, 2007 : Operational Guidelines from NHB to PLIs </li></ul><ul><li>Oct 12, 2007 : State Bank of India announces </li></ul><ul><li>Nov 01, 2007 : Central Bank of India launches </li></ul>REVERSE MORTGAGE FDP BU BLR
  48. 48. References <ul><li>www.nhb.org.in ; www.domain-b.com ; </li></ul><ul><li>www.google.com ; www.rediff.com </li></ul><ul><li>www.reverse.org ; www.investorwords.com </li></ul><ul><li>www.reversemortgage.org </li></ul><ul><li>www.apnaloan.com for FAQs </li></ul><ul><li>www.iloveindia.com/real-estate/reverse-mortgage.html ; www.financialexpress.com </li></ul><ul><li>www.tapmi.org/paper1/rr.rtf </li></ul><ul><li>www.thehindubusinessline.com ; </li></ul>REVERSE MORTGAGE FDP BU BLR
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