Interesting educative article that answers few of your housing finance questions!

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Answers to your query in housing finance
Source: TIMES NEWS NETWORK NHB’s plan of action

The Reserve Bank of India (RBI) had stressed on fairness and transparency in housing loans in the Mid Term Review of Annual Monetary Policy 2006-07 announced in October 2006.

“It has been reported that some banks, while lending for housing, are not fully transparent in indicating the circumstances and factors governing the benchmark in respect of floating rates as well as in regard to reset clauses. Banks are urged to review all practices which are less than fair or transparent”, the review had said.

Taking cue from this, NHB has planned a set of initiatives. It includes introduction of a system of mortgage counselling, promoting a common forum of banks and HFCs which can evolve into a Self-Regulatory Organisation (SRO) and launching a housing finance portal to provide access to consumers for credible, wide ranging information in housing finance.



Mortgage counsellors

As per NHB’s suggestions, a Certified Independent Mortgage Counsellor (CIMC) could be a chartered accountant, cost accountant, ICWA, MBA, CFA, individual insurance agent with Irda accreditation or a retired banker. The counsellor will be eligible to join the forum after clearing an online test conducted by the Indian Institute of Banking & Finance (IIBF). The accreditation would be valid for two years.

Industry experts say buying a house is one of the biggest investment decisions. Often a customer consults his family/real estate experts before making the big decision. Now, what NHB is doing is to bring a pool of specialists who have the required legal, technical and financial expertise to guide a customer.

Says UTI Bank’s retail assets head Sujan Sinha, “Buying a house/property is a large ticket transaction. As an investor, a customer always seeks a second opinion. Now, as a banker, even if I give a fair advice, the customer might always think that my decision is influenced by some ulterior motive. But if there is a third party home loan expert, the counselling is unbiased. Moreover, the counsellor’s loyalty is with the customer not with a bank/HFC.”


Unbiased advice

Let us assume there are two banks A and B offering home loans. Bank A may charge 0.25% higher interest rate than Bank B. But Bank A may have a reset clause after five years as against Bank B which has reset clause after three years. In a rising rate scenario, a counsellor may recommend Bank A even if it charges a tad higher. Now, only an unbiased third party counsellor will be taken at face value if he offers this advice to the customer.

One of the main objectives is to define and maintain high professional and ethical standards in the housing finance market. This forum would also endeavour for standardisation of documentation of underwriting, new products and interact with regulators and government on common issues of housing finance.

Explains Sinha, “This forum would help both the customers and the lenders to pre-judge the pedigree of the builder, quality of construction, title deeds, etc. It would also bring about uniformity in the market characterised by different prices, varied terms and conditions etc.”

NHB also expects the forum to supplement its efforts for consumer protection, financial education, fairness and transparency in lending. “The fact is that the penetration of all consumer loans is increasing. And given the plethora of options available for the customers, it becomes essential for him/her to make the right choice.

For this, the customer has to be aware of every term and condition that underlies the loan, which would help him/her to evaluate the options. Such a forum will explain the pros and cons of the housing loan. This is essential for the customer and long-term growth of housing loans. This would eventually lead to transparency in the system,” adds Mr Sabharwal.

Right step?

Even as industry experts have lauded NHB’s initiative, they have given some pointers to make it successful. It should not be just a lenders forum - Says Apna Loan CEO a home loan expert Harsh Roongta, “It should not be just a lenders club. All stake holders such as consumer forums or NGOs with credible identity should be a part of this association. These entities could at least be roped in as associate members so as to benefit the customers.”

Forum should be complemented by an Ombudsman. This will help in effective implementation of all ideas. Says a senior public sector banker, “Such forums typically generate good talks. But what is important is how much of these best practices trickle down to the consumer.”

If a home loan customer has a complaint against a bank, he/she has to approach the RBI Ombudsman. For a HFC, a customer has to knock the consumer court. With a joint forum in place, the industry should also aim at common Ombudsman for housing loans, the banker added.
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Even as industry experts have lauded NHB’s initiative, they have given some pointers to make it successful. It should not be just a lenders forum - Says Apna Loan CEO a home loan expert Harsh Roongta, “It should not be just a lenders club. All stake holders such as consumer forums or NGOs with credible identity should be a part of this association. These entities could at least be roped in as associate members so as to benefit the customers.”

Forum should be complemented by an Ombudsman. This will help in effective implementation of all ideas. Says a senior public sector banker, “Such forums typically generate good talks. But what is important is how much of these best practices trickle down to the consumer.”

If a home loan customer has a complaint against a bank, he/she has to approach the RBI Ombudsman. For a HFC, a customer has to knock the consumer court. With a joint forum in place, the industry should also aim at common Ombudsman for housing loans, the banker added.
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Even as industry experts have lauded NHB’s initiative, they have given some pointers to make it successful. It should not be just a lenders forum - Says Apna Loan CEO a home loan expert Harsh Roongta, “It should not be just a lenders club. All stake holders such as consumer forums or NGOs with credible identity should be a part of this association. These entities could at least be roped in as associate members so as to benefit the customers.”

Forum should be complemented by an Ombudsman. This will help in effective implementation of all ideas. Says a senior public sector banker, “Such forums typically generate good talks. But what is important is how much of these best practices trickle down to the consumer.”

If a home loan customer has a complaint against a bank, he/she has to approach the RBI Ombudsman. For a HFC, a customer has to knock the consumer court. With a joint forum in place, the industry should also aim at common Ombudsman for housing loans, the banker added.
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