The document discusses financing options for eco-housing and affordable housing in India. It describes an innovative model called EcoTRA that establishes escrow accounts to finance climate-friendly improvements to common areas of housing societies, with loan repayments aligned to energy savings. It also proposes an equity-based housing finance model involving informal savings pools, mezzanine financing, and securitization to help low-income households purchase homes. Additionally, it outlines recent RBI initiatives like relaxed norms for home loans up to Rs. 10 lakh and an interest subsidy scheme launched by the government to promote affordable housing.

1. Presented by
Neelutpal Saha (222012)

2. Introduction
• The Rs 9.7 trillion Indian housing finance market has grown at a steady rate of 19%
CAGR over the last three years while reporting good asset quality indicators despite
challenges in the operating environment.
• While the market continues to be dominated by the five large groups namely
SBI Group, HDFC Group, LIC Housing Finance, ICICI Group and Axis Bank, accounting
for 61% of the total housing credit in India as of September 30, 2014, there has been an
emergence of quite a few new entrants in niche segments like affordable housing and
self employed borrowers, given the high growth potential in these segments.

3. • While in the past, banks were mostly focused on corporate lending, over the last
one and a half years, mortgage and specifically home loans have gained increased
importance and have become key thrust segments for many banks. Consequently,
the home loan book for banks has grown at a higher pace as compared to past
years (15% in H1FY15 and 18% in FY14 as against 14% in FY13).

4. Application: Financing Eco-Housing
in India
• Eco-housing is defined as “Environmentally benign and energy efficient buildings,
sustainable construction practices, and healthy and productive indoor
environment, with lower natural resource use”
Eco-housing financing mechanism:
• Micro-Finance
• Eco-housing mortgages
• Fiscal incentives
• EcoTRA: An innovative model to finance Eco-housing in existing buildings
EcoTRA- IIEC’s proposal is to establish Trust and Retention (escrow) Accounts to
finance climate friendly interventions in common areas of Co-operative Housing
Society (CHS)

5. • The model functioning
is as follows: Banks lend
to CHS for energy and
water efficiency
improvements in
common areas. The
bank places a lien on
the general purpose
account of the CHS for
repayment of the loan.
The repayment may be
aligned with energy
savings from the
installation of Eco-
housing measures.

6. • The escrow mechanism is expected to reduce the risk of lending, giving banks
access to a large number of new clients. Co-operative housing societies will have
increased access to finance and lower utility bills; energy efficiency service
providers will receive additional business, and large-scale implementation will lead
to lower energy consumption

7. Research Paper: Equity-Based Housing Finance
for Low-Income Households
• The proposal offers a three-tiered instrument involving equity, mezzanine finance,
and debt
• Potential homeowners save for equity through informal savings accounts that
allow rotating lump-sum draws. Contingent on the size of their down payment, a
mezzanine fund provides funding at closing.
• The return on the fund is from a premium over the conventional prime mortgage
rate and either an equity position or a look-back second mortgage with no
payment.
• The homeowner receives an interest in the mezzanine fund. The intention is to
securitize the mezzanine fund, leading to tradable home equity, the last large
illiquid asset in wealth.

8. • As a working case, five members agree to save $1,000 annually for 5 years,
depositing $5,000 in the pool. The pool allows each member to buy a house by 5
years, with sequential drawings allowing one borrower a year. The total required
contribution over five years is $5,000. A low-bidding member bids $4,000 for having
the first draw on the pool. The successful bidder, by adding $1,000 from savings has
$5,000 toward a down payment. If the house has a price of $100,000 a total equity
contribution of $20,000 is required to avoid paying for mortgage insurance.
• The remaining portion of the down payment of $15,000 comes from the mezzanine
fund. Although these funds do not operate with insurance, a premium could be
added to cover default risk, spread over many pools . Default occurs if a member fails
to make a contribution, apparently a rare event in such arrangements.
• A borrower with a 5 percent down payment, the lowest equity contribution receives
15 percent in contribution from the mezzanine fund. The remaining 80 percent
comes from a conventional mortgage. The mezzanine finance counts as equity,
allowing the borrower to avoid formal mortgage insurance. The borrower pays the
equivalent of the premium to the mezzanine fund.

9. • Another source of return to the mezzanine finance is as participating equity where
payment is deferred until sale of the house. With sufficient pooling of the
mezzanine finance, the issues can be securitized as a real estate investment trust.
The transaction has a lower loan-to-value ratio, community support, and
monitoring through the rotating equity fund, financial market monitoring through
the mezzanine fund, and participation of government-sponsored enterprises
purchasing the mortgages.
• The fund never requires the owner to sell a house. The liquidity event comes from
the mezzanine fund having an offering. On a sale or cash-out refinancing, the
mezzanine fund is entitled to its pro rata share.
• On a delinquency, the servicer informs the mezzanine fund. The mezzanine fund
can maintain the loan current by making a payment in exchange for extinguishing
or borrowing against the owner’s equity in the fund.
• Alternatively, the fund buys out the owner with a first right of offer. On a default
with loss, the sequence is that first the owner loses all its equity, and then the fund
begins to lose equity.

11. RBI asks bankers to be innovative on home loans
• Reserve Bank Deputy Governor R Gandhi asked lenders to be more financially innovative in
designing home loan products and suggested creation of a periodic deposit-linked facility.
"There is a need with respect to financial innovation, with respect to loan products. One such
product would be savings-induced home loans or a home loan deposit“.
• The amount deposited by the customer can act as the margin money for the down payment
or as a collateral, he said, adding, if implemented, the lender will get an exact idea about the
repayment capacity of the future borrower based on the deposits made during the period.

12. RBI new norms for Home Loans
• Giving a boost to affordable housing, the RBI eased the norms for home loans for up to Rs 10
lakh by allowing banks to include stamp duty and registration charges to the cost of a unit.
• These charges form around 15 per cent of the cost of the house and place a burden on
borrowers.
• The RBI also said that in cases of projects sponsored by government, statutory authorities,
banks may disburse the loans as per the payment stages prescribed by such authorities, even
where payments sought from house buyers are not linked to the stages of construction.

13. Government Initiative: Interest Subsidy Scheme
for Housing the Urban Poor (ISHUP)
• ‘Affordable Housing for All’ is an important policy agenda of the Government of India. A
major initiative has been launched for provision of housing for the Economically Weaker
Sections (EWS) and Low Income Groups (LIG) through the Jawaharlal Nehru National Urban
Renewal Mission (JNNURM).
• The Ministry of Housing and Urban Poverty Alleviation (MH&UPA), Government of India has
designed an Interest Subsidy Scheme as an additional instrument for addressing the housing
needs of the EWS/LIG segments in urban areas.

14. Thank You