In India, Banks and Housing finance companies (HFC) waiting for a circular from National Housing Bank (NHB) to get a clear picture of implications
Housing loan seekers may experience some relaxation with the advent of India Mortgage Guarantee Company, which will be operational over the next few months.
Mr. R.V. Verma, CMD,NHB said , “We are working hard to make affordable (low cost) housing a reality in India. One of the market-oriented initiatives is the introduction of mortgage default guarantee,” .
Under this new mechanism, if a bank / HFC takes cover from a mortgage guarantee company registered with the RBI (Reserve Bank of India), it will get the benefit of capital relief against its loans through lower risk weightage. Also, as a result of the guarantee cover, the bank / HFC can
give higher amount of loans to individual borrowers.
Mr. R.V. Verma also said, “However, this will be subject to a stricter regime of discipline and originating standards. Consequently, loan-to-value ratio will go up, giving higher credit to a housing loan borrower. Moreover, the lenders will also be in a position to pass on the benefit to customers in terms of interest cost on account of lower risk as well as capital relief. We will soon come out with circular on this,” .
The mortgage guarantee company will also ensure HFC’s asset quality. Before giving cover to any lender’s housing loan portfolio, the mortgage guarantee company will appraise the lender, as well as its assets, very thoroughly, and scrutinise borrowers credit worthiness.
Thus, this process will result in expansion and stability of the market through greater penetration to serve all segments of the population.
The guarantee fee may be borne by the lender / partially / fully passed on to the borrowers. This will depend on the business model adopted. Although, it is still not clear whether the banks and HFCs will be allowed to transfer risk of their whole home loan portfolio to the mortgage guarantee company, industry experts believe it will depend on the individual agreements between the guarantee company and lenders.
Mrs. Renu Sud Karnad, MD, Housing Development Finance Corporation (HDFC) said, “Generally, in most countries, depending on the loan-to-value ratio of the banks or HFCs, the portion of total portfolio to be given to mortgage guarantee company is decided,“
Once NHB releases the circular, then only it will be clear as to how much risk can be transferred to this mortgage guarantee company, and how the pricing will be done.
About India Mortgage Guarantee Company..!
India Mortgage Guarantee Company is a joint venture between NHB, Genworth Financial International Holdings, the international mortgage insurance holding company of Genworth Financial, Asian Development Bank, and International Finance Corporation, with NHB and Genworth Financial International Holdings owning 38% and 36%, respectively, and Asian Development Bank and International Finance Corporation sharing the remaining 26% among themselves, equally.
Source : FC Research Bureau
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