Home Buyers May Soon Get 90 % Loan: National Housing Bank

The National Housing Bank (NHB) is considering a proposal that seeks to allow lenders to give up to 90 % of the property value as housing loan.

The proposal is for above Rs. 20 lakh loans that carry mortgage guarantee cover. At present, lenders offer maximum 80 % of the property value as housing loan. We will discuss the matter of increasing LTV (loan-to-value ) ratio for loans that carry mortgage guarantee cover from companies registered with the RBI, said R.V Verma, Chairman and Managing Director, National Housing Bank (NHB), the regulator for housing finance companies.

Housing finance companies (HFCs) enter into a contract with mortgage guarantee companies at the time of loan origination.

The measure helps mitigate default risk. This can also prove financially viable when they securitise housing loan portfolios. People with knowledge of the matter said NHBs efforts are aimed at increasing the LTV ratio for loans above Rs. 20 lakh to 90 % from 80 % now.

LTV ratio at 90% means a housing loan borrower can avail a loan of Rs. 90 lakh against a property value of Rs. 1 crore. Securitisation means selling loan portfolios to other lenders to obtain an upfront payment sacrificing some costs.

Recently,  Dewan Housing Finance (DHFL) concluded the first-ever mortgage guarantee backed securitisation deal for a pool of Rs. 37.83 crore home loans coming from 288 loan accounts, a person familiar with the matter told ET.

Each loan is below Rs. 25 lakh, falling in the priority sector category.

DHFL is said to have sold the portfolio to Indias largest private sector lender ICICI Bank after taking 30 % (of loan size) mortgage-backed guarantee from India Mortgage Guarantee Corporation. This will help the bank attain its priority sector lending target mandated at 40 % of net bank credit.

IMGC is the countrys first mortgage guarantee company. It was established in 2012 as a joint venture with NHB, Asian Development Bank, International Finance Corp and Genworth Financial. Its guarantee can be invoked if DHFL borrowers default on those loans.

Care Ratings has given the loan pool an AAA (SO) rating. Structured obligation (SO) is an issue-specific rating.

As a company,DHFL has a rating of AA+.  DHFL has assigned the pool to a special purpose vehicle, Nirmaan RMBS Trust Series IV 2014, which has issued a pass through certificate where the bank has invested.

Mortgage-backed guarantee is an important risk management tool for housing finance lending, said Mr. Vijay Agrawal, joint general manager at Care Ratings. This will pave the way for future growth in this space.

According to NHBs Mr. Verma, mortgage backed guarantee provides protection from possible defaults, long-term lending for housing loans up to 20 to 25 years.

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