Housing finance types.i. Home Purchase Loansii. Home Construction Loansiii. Home Extension Loansiv. Home Conversion Loansv. Land Purchase Loans.vi. Stamp Duty Loansvii. Bridge Loansviii.Balance Transfer Loansix. Re-finance Loansx. Loans to NRIs
i. Home Purchase Loans: Home Purchase Loans are the basic home loanyou can opt for purchasing new home. This type ofHome Loan is offered by all kinds of Banks and HFCs.ii. Home Construction Loans: Home Construction Loans are especiallymeant for the construction of a new home. Formality ofavailing this loan has a little different from the normalHousing Loan. The plot on which the construction is beingerected is purchased within a period of one year, the costof the plot is then also included as the component for thevaluation of total cost of the property.iii. Home Extension Loans: Home Extension Loans is offered formeeting the operating cost of alteration to an existingbuilding. Extension here means addition of an extra roometc.
iv. Home Conversion Loans: Home Conversion Loans areoffered to those who want finance for the purchaseof another home by converting the already existinghome and on which loan is already sanctioned.Through this loan, the existing loan is transferred tothe new home including the extra amount requiredand there is no need for pre-payment of theprevious loan.v. Land Purchase Loans: Land Purchase Loans can beavailed for purchasing land for both homeconstruction as well as investment purposes.vi. Stamp Duty Loans: Stamp Duty Loans is offered forthe payment of stamp duty in the transaction of theproperty.
vii. Bridge Loans: Bridge Loans are offered for selling theexisting home and purchasing of another. The bridge loanassists in the finance of new home, until a buyer is foundfor the old home.viii. Balance-Transfer Loans: Balance Transfer of the loan is thetransfer of the balance of an existing home loan at ahigher rate of interest (ROI) to either the same companyor another.ix. Re-finance Loans: Refinance loans are availed when aloan from an organization at a particular ROI is droppingleading to a loss. Then the option of swap of the loan canbe availed. One can avail this from either the same HFI orother at the current rates of interest.x. NRI Home Loans: NRI Home Loans are meant for Non-Resident Indians who wish to build or buy a home or
Housing Market• Short Supply of residential Category Housing shortage (Mn) dwellings, existing since post independence EWS 21.78• In 2005 estimated demand is 209.5 million, supply is 189.7 LIG 2.89 Million• Demand – Supply gap is narrowing MIG + HIG 0.04As per 11th 5 year plan• - Shortage of 24.71 million Total 24.71 dwellings• - Close to 99 % of shortage in EWS & LIG segment (Bill Longbrake Anthony T. Cluff Senior Policy Advisor Financial Services Roundtable February 2008)
Housing Finance• The value of total residential mortgage debt moved up from USD 1.84 billion in 1994 to USD 12.26 billion in 2004, as in 2007 there were 7.1 million subprime loans ,constituting 13.3% of total loans serviced.• Interest rates on housing loans have fallen from a peak of 17% in 1996 to 7.5% last fiscal making owning a home more affordable.• Traditionally housing finance was dominated by a handful of private sector institutions.• Salaried borrowers constitute the bulk of the clientele for the financier in comparison to the self-employed borrowers• Traditionally housing finance was dominated by a handful of private sector institutions. These Housing Finance Companies (HFCs) commanded 70% market share in FY99, which has subsequently fallen to 50% in FY04.• Banks now control 40% of this market
Government Policy & Objectives• In the Tenth-Five-Year-Plan; a CAGR of 45%. Prior to that, the Government of India was generally not supportive of housing finance through its policies.• Larger allocation of public funds, fiscal incentives and tax rebates on principal repayment and Equated monthly instalments (EMIs) .• A welcome move recently announced by the government is that 100% Foreign Direct Investment (FDI) in India would be allowed in townships, housing, built-up infrastructure and construction-development projects.• A lot remains to be achieved with regard to issues surrounding regularization of land records, urban land ceiling act, rent control act etc.,
BORROWERS/USERSSupply of credit• Housing credit portfolio• Continuity of new lending• Market shares• Loan amounts + periods of redemptionCredit availability• Collateral requirements• Income ratios• Number of customers• Third party lendingCredit affordability• Mortgage rates and fees• Spreads and real interest rates• Liquidity• Interest rate risks
LENDERS/INVESTORSInvestment attractiveness• Maturity of investment• Share of institutional investors• Yields• Spreads and real interest ratesSecurity of funds• Inflation and reinvestment risk• Solvency• Credit risks• Capital adequacyProfitability for shareholders• Cost efficiency• Net income and margins• Return on equity assets• Cost-income ratios
GOVERNMENT/ POLICY MAKERSAchievable indirect benefits• Housing outcomes and national income• Financial depthEconomic prerequisites• Macro-economic stability• WillingnessInstitutional prerequisites• Legislation• Regulation and supervisionSector – specific prerequisites• Degree of financial development• Quality of residential infrastructure, construction sector and rent level• Efficient Housing Finance System Home- ownership promotions
Credit Crisis in housing industry• Stagflation =Recession + Inflation• Recession= General slowdown in economic activity.• Inflation = Prices go up , since worth of money is less.
Credit Crisis?It is a world wide financial fiasco involving the terms:• Sub prime mortgages• Collateralized debt obligations..• Credit default swaps.Who is affected? “EVERYONE”
Earlier?• Investors , put their money in federal reserve to get treasury bills and obtain good rate of return.• After 9/11, the interest rate was turned to only 1% resulting in bad investment (Allen green , chairman).• Banks purchased a lot of cheap credit from federal reserve turning to leverage(borrowing money to amplify the outcome of a deal).• Wall street made a lot profit and attracted investors. Home Bank Investors owners (mortgages)
Down payment Home owner/Buyer Mortgage broker Mortgage Lender Mortgage Housing prises rise practically• Home owners lend money from lenders and get a house. Investment• Investment banker borrows money and buys banker lot of mortgages.• Banks started receiving a lot of money Buys the mortgages from (instalments) from home owners. lender at a nice profit.
Investment Many CDO(Collateralize banker/bank. mortgages d debt obligations. • Banks insures these CDO for a fee and “Credit Safe. 3% default swaps”, is created.CDO • Sells Safe to investors. Okay. 7% • Sells okay to other banks. Risky. 10% • Sells risky to risk takers of share markets. • Thus bans make huge money and repays the loan.Everything was going fine, investors want more mortgages, calledinvestment banker. Investment banker calls mortgage lender tofind more buyers…. But not much buyers in the market.
No down payment, no proof of income etc. requiredMortgage Lender More home buyers • As housing prices always rise, house is the security for their for their loan. • Loans were given to less responsible people called “Sub prime mortgages”. • Same process repeats, everybody making profit, until homeowners default on payment of instalments. • All cash flow to CDO’s turned into houses, which people were not ready to purchase. • As neighbourhood houses were foreclosed, and for loaned, property prices start to fall, responsible people also sold their house and left.
Investment NObanker/bank. Risk takers. NO NO Other banks. Investors• Investment bankers borrowed millions of dollars bonds.• No one was ready to purchase.• All CDO’s remains with him.• Other banks and investors faced the same challenge.• Brokers and lenders are out of the system.• Whole system collapsed, massive bankruptcy occurred.• Moreover home owners investment also went worthless.