Training Session on General Housing Finance

1
Training Session on General Housing Finance

• Syed Nabeel Ahmed Rizvi
• Business Manager-Secured Products
• United Bank Limited

2
Mortgage Industry Overview
3
Mortgage Industry Overview
4
Housing Finance Market
5
Mortgage Market of Pakistan (Gross Outstanding)
6
Major Stakeholder
7

• REGULATIONS FOR HOUSING FINANCE

8
REGULATION R-15

• Banks/DFIs shall determine the housing finance
  limit, both in urban and rural areas, in
  accordance with their internal credit policy,
  credit worthiness and loan repayment capacity of
  the borrowers. At the same time, while
  determining the credit worthiness and repayment
  capacity of the prospective borrower, banks/DFIs
  shall ensure that the total monthly amortization
  payments of consumer loans, inclusive of housing
  loan, should not exceed 50 of the net disposable
  income of the prospective borrower.
• The bank should not allow housing finance for the
  purchase of land but can extend finance for the
  purchase of land and construction on it.
• The bank may allow housing finance for
  construction of houses against land owned by
  their customers

9
Maximum Per Party Limit
UBL Loan Amount Loan Amount
Product Range Minimum (PKR Million) Maximum(PKR Million)
Purchase 0.5 30
Home Equity 0.5 10
Build 0.5 30
10
Age
11
Income Employment Requirement
12
Types of Housing Finance

• Buying a Home
• Loan for Purchase of a constructed residential
  property like house, duplex, apartment and
  townhouse, where the said property can be
  mortgaged with the bank. With a maximum financing
  limit of 85 you can easily buy a house or
  apartment that best fits your requirements\
• Building a Home
• Building a Home is loan for construction of home
  over a residential plot.  The financing will be
  done in tranches. Customer provides the detailed
  BOQ (Bill of Quantity) and approved building plan
  for the construction. The customer, together with
  his/her architect and the banks approved
  appraiser, will prepare the BOQ.

13
Types of Housing Finance

• Home Equity - Renovation
• Home equity loan is against residential property
  (as mentioned in Home Purchase), which the
  borrower already owns, for the purpose of making
  improvements in the property.
• Land Plus Construction
• Land Construction loan is for Purchase of land
  and subsequent construction. The financing is
  done in 5 trenches (1st trench for purchase of
  land and subsequent 4 trenches for construction
  as per BOQ). The customer has to start
  construction within 6 months of purchase of land.
• Balance Transfer Facility
• Balance transfer is for financing of Mortgage
  taken out from other Banks

14
UBL Address Variants
15
REGULATION R-16 (Loan-To-Value)
The housing finance facility shall be provided at
a maximum debt-equity ratio of 8515.
16
REGULATION R-17
As per SBP PR Banks/DFIs may extend mortgage
loans for housing upto any tenure defined in the
banks/DFIs duly approved credit policy and
keeping in view the maturities profile of their
assets liabilities
UBL Loan Tenure (Years) Loan Tenure (Years)
Product Range Minimum Maximum
Purchase 3 20
Home Equity 3 20
Build 3 20
17
REGULATION R-18

• The house financed by the bank/DFI shall be
  mortgaged in banks/DFIs favour by way of
  equitable or registered mortgage.
• Registered Mortgage
• In registered mortgage (RM), the mortgagor binds
  himself to repay the mortgage money on a certain
  date and transfers the mortgaged property
  absolutely to the mortgagee but with the
  condition that it will re-transfer it to the
  mortgagor upon the payment of mortgage money as
  agreed. The mortgagee acquires the right to sell
  but only where mortgagor defaults in repayment of
  the loan.
• Equitable Mortgage
• Being the most common and generally accepted,
  equitable mortgage (EM) is completed by deposit
  of title deed of the Property. EM also gives the
  right to sell to the creditor upon default by the
  borrower but only after obtaining permission of
  the court. The deposit of title deed is
  documented by means of a Memorandum of Deposit of
  Title Deeds MODTD.

18
REGULATION R-19

• Banks/DFIs shall either engage professional
  expertise or arrange sufficient training for
  their concerned officials to evaluate the
  property, assess the genuineness and integrity of
  the title documents, etc.
• PBA approved companies on penal or sufficient
  training for internal staff looking after the
  above tasks

19
REGULATION R-20

• The banks/DFIs management should put in place a
  mechanism to monitor conditions in the real
  estate market (or other product market) at least
  on quarterly basis to ensure that its policies
  are aligned to current market conditions.

20
REGULATION R-21

• Banks are encouraged to develop floating rate
  products for extending housing finance, thereby
  managing interest rate risk to avoid its adverse
  effects.

21
REGULATION R-21 (Classification)
Category Determinant Provisions
Substandard Overdue by 90 days or more 25 provision of the difference form the outstanding principal balance less the Forced Sales Value of mortgage properties to the extent of 75 of such FSV
Doubtful Overdue by 180 days or more 75 provision of the difference form the outstanding principal balance less the Forced Sales Value of mortgage properties to the extent of 50 of such FSV
Loss Overdue by one year or more 100 provision of the difference form the outstanding principal balance less the Forced Sales Value of mortgage properties to the extent of 75 for first year 60 for second year 45 for third year 30 for fourth year and 20 for fifth year
22
Target Cities
23
Issues in Housing Finance

• Undocumented Economy
• Our Legal Framework affecting Foreclosure of
  loan, takes long time to initiate legal
  prosecution against delinquent borrowers.
• Transfer, Tenancy, Rent Control it refers to the
  weak property transfer process in all over in
  Pakistan including in Urban or Rural areas both.
• Rationalization of Transaction Costs It varies
  with area and concerned allotment authorities.

24
Issues in Housing Finance

• Integrated land registration information system
• Financing on Housing project there is no
  mechanism of project financing because of the
  potential threat of land grabbing mafias and
  political interventions.
• Supply of land for affordable housing
  availability of land for affordable housing is
  difficult
• Structuring and streamlining Large Scale
  Developers Finance

25
Issues in Housing Finance

• Facilitate low-cost/low-income housing models and
  products
• Facilitate Real Estate Investment Trusts (REITs)
• Provision of long term funding for housing loans
• Housing Observatory (housing market information
  system)
• Capacity building of the mortgage banking
  industry in Pakistan

26
Process Flow
27
Charges
Type of Charge Amount (Rs.)
Processing Charges 5,000
Legal Charges 4,000
Appraisal Charges 4,000
Late Fee per Installment 1,000
Property Insurance Free _at_ 0.049
Life Insurance Optional
Prepayment Penalty on Outstanding Principal 8 in year 1 5 in year 2 3 from year 3 and onwards
28
Documentation

• General
• Copy of CNIC
• Two recent photographs
• (also for Co-borrower whether income clubbing or
  not)

29
Documentation

• Specific

Salaried (known companies) Current salary slip Employment certificate
Salaried (unknown companies) Bank statement (for the last 24 months) Tax document (for the last 24 months)
SEB/SEP Bank statement for the last 12 months. Last 3 years (2 years for existing customers ) of tax assessment or registered partnership deed or Memorandum of article of association and last three years Form A/29 or Proprietorship Letter from Bank.
30
Verifications

• General
• Data Check, NADRA, Verisys, ECIB, SECP (where
  required), FBR, FRMU, Online Telephone
  verification is mandatory for all mentioned
  segments

31
Verifications / Reports

• Specific (Salaried)
• Internal (telephone) verifications conducted for
  home
• Internal (telephone) verifications conducted for
  office
• Physical verifications conducted for office
  home
• Legal Opinion Taken from lawyers
• Property Appraisal conducted from agency
• Collateral VA conducted
• Market Check variance with appraisal report
• Housing price Grid variance with appraisal report

32
Verifications / Reports

• Specific (Businessmen)
• Internal (telephone) verifications conducted for
  home
• Internal (telephone) verifications conducted for
  Business
• Physical verifications conducted for office /
  Business home
• Legal Opinion Taken from lawyers
• Property Appraisal conducted from agency
• Collateral VA conducted
• Market Check variance with appraisal report
• Housing price Grid variance with appraisal report

33
Income Estimation / Calculation

• For salaried segment income is calculated through
  salary slip and bank statement (for unknown
  companies)
• For SEB / SEP Class
• Income is calculated through bank statement of
  the customer as per the existing income
  calculation methodology. Clubbing of income
  through 2 bank statements is allowed.

34
Thank You