BELGAUM
Entitled
“REVERSE MORTGAGE”
A PROJECT REPORT
ON
“REVERSE MORTGAGE”
FOR
Submitted To:
KARNATAK UNIVERSITY DHARWAD FOR PARTIAL
FULFILLMENT OF MASTER OF BUSINESS ADMINISTRATION
Submitted By:
DEEPA G. UPPAR
Reg No: MBA06003016
MBA IV semester
This project has been a unique experience for me, where I could learn practically
the working of an organization and interact with all the professionals and customers
there.
It is my privilege to extend words of thanks to the people who have helped and
encouraged me in completing this study successfully.
I would also like to thank our Director, Dr P M Charantimath for her whole
hearted support.
I owe a debt of gratitude to my Parents, the silent guides in my Life without their
never-ending support nothing would have been possible.
I also dedicate my sincere thanks to all Teaching & Non Teaching Staff Members
for their help.
Last but not the least I thank my friends and each & every one who directly or
indirectly helped me in making my project successful.
DEEPA.G. UPPAR
INDEX
1 Executive summary
1
3 Introduction to SBI
13
4 Reverse Mortgage 22
5 Feasibility study
67
7 Bibliography 78
8 Annexure 80
DECLARATION BY THE STUDENT
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
The title of the project is “REVERSE MORTGAGE”. Project was carried out at
SBI main branch, station road Belgaum. The main objective behind the study was to
understand the concept of Reverse Mortgage and its feasibility study.
Study has been taken in order to know the feasibility of Reverse Mortgage in SBI
main branch, Belgaum.
Research Methodology:
Sample size :- 30
Data collection method
• Primary data
− Questionnaire
− Personal interview
− Observations
• Secondary data
− Records of SBI
− Journals
− Websites
Scope of study
• Belgaum city
Limitations of study:
• Educate people about reverse mortgage: - As by the survey I have found out that
only 40% of the respondents have some basic idea about reverse mortgage, so by
this it can be said that people are not educated about reverse mortgage. So I would
suggest the bank to educate the people about reverse mortgage through
advertisements, conducting workshops and lectures on reverse mortgage etc.
• Take responsibility for the expenses incurred by the borrower on property
valuation etc: - As it is necessary that the person going for reverse mortgage
should make valuation of his property first, these valuation expenses are incurred
by the applicant himself. During my survey some respondents said that, as they
are aged it is very difficult for them arrange money for property valuation and for
this reason they think going for reverse mortgage is not attractive. So I would
suggest bank to take responsibility of the expenses incurred by the borrower on
property by including it in the total value so that many people go for it.
• Proper eligibility criterions: - In some cases there is a risk of default by the
borrower; this risk can be avoided at the time of providing loans. So in order to
avoid the risk I would suggest the bank to do proper verification of the title of the
property, age of the borrower; his/her credit analysis etc. This reduces the risk of
default by the borrower
• Geographical diversification.:- The bank can look at spreading the business across
the country by promoting the product in secondary and tertiary cities also so that
the law of large numbers may work properly and if the bank has a bad experience
in one market; it can be compensated with good experience in other cities
CHAPTER- 2
INTRODUCTION TO BANKING
SECTOR IN INDIA
Introduction to Banking Sector in India
Banking in India originated in the first decade of 18th century with The General Bank
of India coming into existence in 1786. This was followed by Bank of Hindustan. Both
these banks are now defunct. The oldest bank in existence in India is the State Bank of
India being established as "The Bank of Bengal" in Calcutta in June 1806. A couple of
decades later, foreign banks like Credit Lyonnais started their Calcutta operations in the
1850s. At that point of time, Calcutta was the most active trading port, mainly due to the
trade of the British Empire, and due to which banking activity took roots there and
prospered. The first fully Indian owned bank was the Allahabad Bank, which was
established in 1865.
By the 1900s, the market expanded with the establishment of banks such as Punjab
National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which
were founded under private ownership. The Reserve Bank of India formally took on the
responsibility of regulating the Indian banking sector from 1935. After India's
independence in 1947, the Reserve Bank was nationalized and given broader powers.
History of Banks
At the end of late-18th century, there were hardly any banks in India in the modern
sense of the term. At the time of the American Civil War, a void was created as the
supply of cotton to Lancashire stopped from the Americas. Some banks were opened at
that time which functioned as entities to finance industry, including speculative trades in
cotton. With large exposure to speculative ventures, most of the banks opened in India
during that period could not survive and failed. The depositors lost money and lost
interest in keeping deposits with banks. Subsequently, banking in India remained the
exclusive domain of Europeans for next several decades until the beginning of the 20th
century.
The Bank of Bengal, which later became the State Bank of India.At the beginning of
the 20th century, Indian economy was passing through a relative period of stability.
Around five decades have elapsed since the India's First war of Independence, and the
social, industrial and other infrastructure have developed. Atthat time there were very
small banks operated by Indians, and most of them were owned and operated by
particular communities. The banking in India was controlled and dominated by the
presidency banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank of
Madras - which later on merged to form the Imperial Bank of India, and Imperial Bank of
India, upon India's independence, was renamed the State Bank of India. There were also
some exchange banks, as also a number of Indian joint stock banks. All these banks
operated in different segments of the economy. The presidency banks were like the
central banks and discharged most of the functions of central banks. They were
established under charters from the British East India Company. The exchange banks,
mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint
stock banks were generally under capitalized and lacked the experience and maturity to
compete with the presidency banks, and the exchange banks. There was potential for
many new banks as the economy was growing. Lord Curzon had observed then in the
context of Indian banking: "In respect of banking it seems we are behind the times. We
are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate
and cumbersome compartments."
Under these circumstances, many Indians came forward to set up banks, and
many banks were set up at that time, a number of which have survived to the present such
as Bank of India and Corporation Bank, Indian Bank, Bank of Baroda, and Canara Bank.
Post-independence
The partition of India in 1947 had adversely impacted the economies of Punjab and
West Bengal, and banking activities had remained paralyzed for months. India's
independence marked the end of a regime of the Laissez-faire for the Indian banking. The
Government of India initiated measures to play an active role in the economic life of the
nation, and the Industrial Policy Resolution adopted by the government in 1948
envisaged a mixed economy. This resulted into greater involvement of the state in
different segments of the economy including banking and finance. The major steps to
regulate banking included:
• In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of India.
• In 1949, the Banking Regulation Act was enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control, and inspect the banks in India."
• The Banking Regulation Act also provided that no new bank or branch of an
existing bank may be opened without a licence from the RBI, and no two banks
could have common directors.
However, despite these provisions, control and regulations, banks in India except the
State Bank of India, continued to be owned and operated by private persons. This
changed with the nationalization of major banks in India on 19th July, 1969.
Nationalisation
By the 1960s, the Indian banking industry has become an important tool to
facilitate the development of the Indian economy. At the same time, it has emerged as a
large employer, and a debate has ensued about the possibility to nationalize the banking
industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the
GOI in the annual conference of the All India Congress Meeting in a paper entitled
"Stray thoughts on Bank Nationalisation." The paper was received with positive
enthusiasm.
Thereafter, her move was swift and sudden, and the GOI issued an ordinance and
nationalised the 14 largest commercial banks with effect from the midnight of July 19,
1969. Jayaprakash Narayan, a national leader of India, described the step as a
"masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the
Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill,
and it received the presidential approval on 9th August, 1969.
A second dose of nationalisation of 6 more commercial banks followed in 1980. The
stated reason for the nationalisation was to give the government more control of credit
delivery. With the second dose of nationalisation, the GOI controlled around 91% of the
banking business of India.
After this, until the 1990s, the nationalised banks grew at a pace of around 4%,
closer to the average growth rate of the Indian economy.
Liberalisation
In the early 1990s the then Narasimha Rao government embarked on a policy of
liberalisation and gave licences to a small number of private banks, which came to be
known as New Generation tech-savvy banks, which included banks such as UTI
Bank(now re-named as Axis Bank) (the first of such new generation banks to be set up),
ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of
India, kickstarted the banking sector in India, which has seen rapid
growth with strong contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks.
The next stage for the Indian banking has been setup with the proposed relaxation
in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be
given voting rights which could exceed the present cap of 10%,at present it has gone up
to 49% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this
time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of
functioning. The new wave ushered in a modern outlook and tech-savvy methods of
working for traditional banks.All this led to the retail boom in India. People not just
demanded more from their banks but also received more.
Current situation
With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong. One may also
expect M&As, takeovers, and asset sales.In March 2006, the Reserve Bank of India
allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector
bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in
a private sector bank since the RBI announced norms in 2005
that any stake exceeding 5% in the private sector banks would need to be vetted by them.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector
banks (that is with the Government of India holding a stake), 29 private banks (these do
not have government stake; they may be publicly listed and traded on stock exchanges)
and 31 foreign banks. They have a combined network of over 53,000 branches and
17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector
banks hold over 75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5% respectively.
CHAPTER- 3
Evolution of SBI
The origin of the State Bank of India goes back to the first decade of the nineteenth
century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three
years later the bank received its charter and was re-designed as the Bank of Bengal (2
January 1809). A unique institution, it was the first joint-stock bank of British India
sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the
Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remained
at the apex of modern banking in India till their amalgamation as the Imperial Bank of
India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence
either as a result of the compulsions of imperial finance or by the felt needs of local
European commerce and were not imposed from outside in an arbitrary manner to
modernize India's economy. Their evolution was, however, shaped by ideas culled from
similar developments in Europe and England, and was influenced by changes occurring
in the structure of both the local trading environment and those in the relations of the
Indian economy to the economy of Europe and the global economic framework.
• Establishment
The establishment of the Bank of Bengal marked the advent of limited liability, joint-
stock banking in India. So was the associated innovation in banking, viz. the decision to
allow the Bank of Bengal to issue notes, which would be accepted for payment of public
revenues within a restricted geographical area. This right of note issue was very valuable
not only for the Bank of Bengal but also its two siblings, the Banks of Bombay and
Madras. It meant an accretion to the capital of the banks, a capital on which the
proprietors did not have to pay any interest. The concept of
deposit banking was also an innovation because the practice of accepting money for
safekeeping (and in some cases, even investment on behalf of the clients) by the
indigenous bankers had not spread as a general habit in most parts of India. But, for a
long time, and especially upto the time that the three presidency banks had a right of note
issue, bank notes and government balances made up the bulk of the investible resources
of the banks.
The three banks were governed by royal charters, which were revised from time to
time. Each charter provided for a share capital, four-fifth of which were privately
subscribed and the rest owned by the provincial government. The members of the board
of directors, which managed the affairs of each bank, were mostly proprietary directors
representing the large European managing agency houses in India. The rest were
government nominees, invariably civil servants, one of whom was elected as the
president of the board.
• Business
The business of the banks was initially confined to discounting of bills of exchange or
other negotiable private securities, keeping cash accounts and receiving deposits and
issuing and circulating cash notes. Loans were restricted to Rs.one lakh and the period of
accommodation confined to three months only. The The business of the banks was
initially confined to discounting of bills of exchange or other negotiable private
securities, keeping cash accounts and receiving deposits and issuing and circulating cash
notes. Loans were restricted to Rs.one lakh and the period of accommodation confined to
three months only. The security for such loans was public securities, commonly called
Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a perishable nature' and
no interest could be charged beyond a rate of twelve per cent. Loans against goods like
opium, indigo, salt woollens, cotton, cotton piece goods, mule twist and silk goods were
also granted but such finance by way of cash credits gained momentum only from the
third decade of the
nineteenth century. All commodities, including tea, sugar and jute, which began to be
financed later, were either pledged or hypothecated to the bank.
Demand promissory notes were signed by the borrower in favour of the guarantor,
which was in turn endorsed to the bank. Lending against shares of the banks or on the
mortgage of houses, land or other real property was, however, forbidden.Indians were the
principal borrowers against deposit of Company's paper, while the business of discounts
on private as well as salary bills was almost the exclusive monopoly of individuals
Europeans and their partnership firms. But the main function of the three banks, as far as
the government was concerned, was to help the latter raise loans from time to time and
also provide a degree of stability to the prices of government securities.
A major change in the conditions of operation of the Banks of Bengal, Bombay and
Madras occurred after 1860. With the passing of the Paper Currency Act of 1861, the
right of note issue of the presidency banks was abolished and the Government of India
assumed from 1 March 1862 the sole power of issuing paper currency within British
India. The task of management and circulation of the new currency notes was conferred
on the presidency banks and the Government undertook to transfer the Treasury balances
to the banks at places where the banks would open branches. None of the three banks had
till then any branches (except the sole attempt and that too a short-lived one by the Bank
of Bengal at Mirzapore in 1839) although the charters had given them such authority. But
as soon as the three presidency bands were assured of the free use of government
Treasury balances at places where they would open branches, they embarked on branch
expansion at a rapid pace. By 1876, the branches, agencies and sub agencies of the three
presidency banks covered most of the major parts and many of the inland trade centers in
India.
While the Bank of Bengal had eighteen branches including its head office, seasonal
branches and sub agencies, the Banks of Bombay and Madras had fifteen each.
India's international trade more than six-fold. The three presidency banks were both
beneficiaries and promoters of this commercialization process as they became involved in
the financing of practically every trading, manufacturing and mining activity in the sub-
continent. While the Banks of Bengal and Bombay were engaged in the financing of
large modern manufacturing industries, the Bank of Madras went into the financing of
large modern manufacturing industries, the Bank of Madras went into the financing of
small-scale industries in a way which had no parallel elsewhere. But the three banks were
rigorously excluded from any business involving foreign exchange. Not only was such
business considered risky for these banks, which held government deposits, it was also
feared that these banks enjoying government patronage would offer unfair competition to
the exchange banks which had by then arrived in India. This exclusion continued till the
creation of the Reserve Bank of India in 1935.
The presidency Banks of Bengal, Bombay and Madras with their 70 branches were
merged in 1921 to form the Imperial Bank of India. The triad had been transformed into a
monolith and a giant among Indian commercial banks had emerged. The new bank took
on the triple role of a commercial bank, a banker's bank and a banker to the
government.But this creation was preceded by years of deliberations on the need for a
'State Bank of India'. What eventually emerged was a 'half-way house' combining the
functions of a commercial bank and a quasi-central bank.The establishment of the
Reserve Bank of India as the central bank of the country in 1935 ended the quasi-central
banking role of the Imperial Bank. The latter ceased to be bankers to the Government of
India and instead became agent of the Reserve Bank for the transaction of government
business at centers at which the central bank was not established. But it continued to
maintain currency chests and small coin depots and operate the remittance facilities
scheme for other banks and the public on terms stipulated by the Reserve Bank. It also
acted as a bankers' bank by holding their
surplus cash and granting them advances against authorized securities. The management
of the bank clearing houses also continued with it at many places where the Reserve
Bank did not have offices. The bank was also the biggest tendered at the Treasury bill
auctions conducted by the Reserve Bank on behalf of the Government. The establishment
of the Reserve Bank simultaneously saw important amendments being made to the
constitution of the Imperial Bank converting it into a purely commercial bank. The earlier
restrictions on its business were removed and the bank was permitted to undertake
foreign exchange business and executor and trustee business for the first time.
• Imperial Bank
The Imperial Bank during the three and a half decades of its existence recorded an
impressive growth in terms of offices, reserves, deposits, investments and advances, the
increases in some cases amounting to more than six-fold. The financial status and
security inherited from its forerunners no doubt provided a firm and durable platform.
But the lofty traditions of banking which the Imperial Bank consistently maintained and
the high standard of integrity it observed in its operations inspired confidence in its
depositors that no other bank in India could perhaps then equal. All these enabled the
Imperial Bank to acquire a pre-eminent position in the Indian banking industry and also
secure a vital place in the country's economic life.When India attained freedom, the
Imperial Bank had a capital base (including reserves) of Rs.11.85 crores, deposits and
advances of Rs.275.14 crores and Rs.72.94 crores respectively and a network of 172
branches and more than 200 sub offices extending all over the country
In 1951, when the First Five Year Plan was launched, the development of rural India was
given the highest priority. The commercial banks of the country including the Imperial
Bank of India had till then confined their operations to the urban sector and were not
equipped to respond to the emergent needs of economic regeneration of the rural areas. In
order, therefore, to serve the economy in general and the rural sector in particular, the All
India Rural Credit Survey Committee recommended the creation of a state-partnered and
state-sponsored bank by taking over the Imperial Bank of India, and integrating with it,
the former state-owned or state-associate banks. An act was accordingly passed in
Parliament in May 1955 and the State Bank of India was constituted on 1 July 1955.
More than a quarter of the resources of the Indian banking system thus passed under the
direct control of the State. Later, the State Bank of India (Subsidiary Banks) Act was
passed in 1959, enabling the State Bank of India to take over eight former State-
associated banks as its subsidiaries (later named Associates).The State Bank of India was
thus born with a new sense of social purpose aided by the 480 offices comprising
branches, sub offices and three Local Head Offices inherited from the Imperial Bank. The
concept of banking as mere repositories of the community's savings and lenders to
creditworthy parties was soon to give way to the concept of purposeful banking sub
serving the growing and diversified financial needs of planned economic development.
The State Bank of India was destined to act as the pacesetter in this respect and lead the
Indian banking system into the exciting field of national development.
Organization structure of the SBI main branch, Belgaum
DOMESTIC
DEPUTY
MANAGER (FO)
DEPARTMENT DEPUTY
MANAGER MANAGER DEP. MANAGER
(CASH) (SYSTEM) (GENERAL A/C)
REVERSE MORTGAGE
Reverse Mortgage
Introduction to Reverse Mortgage
Until recently, there were two main ways to get cash from your home the first one
is you could sell your home, but then you would have to move and the second one is
you could borrow against your home, but then you would have to make monthly loan
repayments. Now there is a third way of getting money from your home that does not
require you to leave it or to make regular loan repayments that is “Reverse Mortgage”. A
reverse mortgage is a loan against your home that you do not have to pay back for as long
as you live there. With a reverse mortgage, you can turn the value of your home into cash
without having to move or to repay a loan each month. No matter how this loan is paid
out to you, you typically don’t have to pay anything back until you die, sell your home, or
permanently move out of your home. Reverse mortgages is a powerful tool to help
eligible homeowners obtain tax-free cash flow. Reverse mortgages enable eligible
homeowners to access the money they have built up as equity in their homes. They are
primarily designed to strengthen seniors’ personal and financial independence by
providing funds without a monthly payment burden during their lifetime in the home. The
major eligibility requirements are that the person must be at least 62 years of age and
should own a home. Reverse mortgage is emerging as a significant financial security tool
for senior homeowners because of the broad range of needs these unique loans can
satisfy.
Senior homeowners of all income levels have taken out reverse mortgages for
many different reasons. For some, reverse mortgages provide the extra money that let
them stay securely in their homes throughout retirement. For others, reverse mortgages
provide a means to live more comfortably and pursue their dreams. Its a special type of
mortgage which allows the senior homeowner to access their equity which they have
built up in the form of the home and use the money according to their wish, all this while
letting owner stay in his home. It’s called a reverse mortgage because the flow of
payments is reversed from a traditional mortgage.
The lender makes payments to the owner, or arranges a line of credit that is
available for the owners use. This differs from a traditional mortgage used to purchase or
refinance a home in which you must make monthly mortgage payments to the bank.
To qualify for most loans, the lender checks the applicant’s income to see how
much he can afford to pay back each month. But with a reverse mortgage, he doesn’t
have to make monthly repayments. So the owner or the applicant doesn’t need a
minimum amount of income to qualify for a reverse mortgage. He could have no income,
and still be able to get a reverse mortgage. With most home loans, if a person fails to
make his monthly repayments, he could lose his home. But with a reverse mortgage, he
doesn’t have any monthly repayments to make. So he can’t lose his home by failing to
make them. Reverse mortgages typically require no repayment for as long as the owner
or co-owner live in the home. So reverse mortgage differ from other home loans in these
important ways, the first one is the applicant don’t need an income to qualify for a
reverse mortgage and the second one is he don’t have to make monthly repayments on a
reverse mortgage.
Reverse mortgages have a different purpose than forward mortgages do. With a
forward mortgage, you use your income to repay debt, and this builds up equity in your
home. But with a reverse mortgage, you are taking the equity out in cash. So with a
reverse mortgage your debt increases and your home equity decreases. It’s just the
opposite, or reverse of traditional mortgage. During a reverse mortgage, the lender sends
you cash, and you make no repayments. So the amount you owe (your debt) gets larger as
you get more cash and more interest is added to your loan balance. As your debt grows,
your equity shrinks, unless your home’s value is growing at a high rate. When a reverse
mortgage becomes due and payable, you may owe a lot of money and your equity may be
very small. If you have the loan for a long time, or if your home’s value decreases, there
may not be any equity left at the end of the loan. In short, a reverse mortgage is a “rising
debt, falling equity” type of
deal. But that is exactly what informed reverse mortgage borrowers want to “spend
down” their home equity while they live in their homes, without having to make monthly
loan repayments.
Difference between traditional mortgage and reverse mortgage
The history of reverse mortgage goes back to 1961.In the year 1961 the first reverse
mortgage loan was made by Nelson Haynes of Deering Savings & Loan (Portland, ME)
to Nellie Young, the widow of his high school football coach.In the year 1963 the first
property tax deferral program offered in Oregon, financed through Public Employees
Retirement Fund.In 1970 Survey research on a "housing annuity plan" was conducted in
Los Angeles by Yung-Ping Chen of UCLA. In 1975 Technical monograph on "Creating
New Financial Instruments for the Aged" authored by Jack M. Guttentag of The
Wharton School.In 1977 First RM loan program, "Equi-Pay", introduced by Arlo Smith
of Broadview Savings & Loan in Independence, OH.In 1978 "Reverse Mortgage Study
Project" funded by Wisconsin Bureau on Aging, directed by Ken Scholen and First
statewide deferred payment loan program offered by WI Dept of Local Affairs and
Development, designed by William Perkins.In 1979 First national "Reverse Mortgage
Development Conference"sponsored by WI Bureau on Aging in Madison, WI on May
21-22.San Francisco Development Fund's "Reverse Annuity Mortgage(RAM)" program
funded by Federal Home Loan ank Board, foundations, and WI Bureau on Aging;
directed by Don Ralya .
In 1980 Unlocking Home Equity for the Elderly, edited by Ken Scholen and Yung-
Ping Chen, published by Ballinger (Cambridge, MA) .Two-year "Home Equity
Conversion Project" funded by U.S.Administration on Aging, directed by Ken Scholen
FHA reverse mortgage insurance proposal by Ken Scholenendorsed by housing pre-
conference to 1981 White House Conference on Aging.In 1981 National Center for
Home Equity Conversion (NCHEC) incorporated as independent, non-profit organization
in Madison, WI; directed by Ken Scholen U. S. House Select Committee on Aging hears
first Cong- ressional testimony on reverse mortgages, by Ken Scholen White House
Conference on Aging endorses proposal for FHA RM insurance, recommending that "the
FHA should develop an insurance program for reverse mortgage loans" Newsweek,
Time, U.S. News, Good Morning America
provide first national media exposure for reverse mortgages San Francisco RAM program
closes first loans.In 1982 "National Potential for Home Equity onversion" authored by
Bruce Jacobs (University of Rochester) San Francisco RAM program expands to new
sites in California, directed by Bronwyn Belling.U. S. Administration on Aging funds
NCHEC research on federal issues - including FHA RM insurance U. S. Senate Special
Committee on Aging stages first hearing on reverse mortgages; staffed by John Rother;
testimony by Ken Scholen, Jack Guttentag, Maurice Weinrobe, James Firman U. S.
Senate Special Committee on Aging issues report citing need for reverse mortgage
insurance Garn-St. Germain Depository Institutions Act clears regulatory path for
reverse mortgages; first federal statutory recognition of reverse mortgages.
In 1983 Federal Council on Aging supports proposal for FHA reverse mortgage
insurance. FHA reverse mortgage insurance demonstration program proposed by U.S.
Department of Housing and Urban Develop- ment (HUD) in housing bill "RMs:
Problems and Prospects for a Secondary Market and an Examination of Mortgage
Guaranty Insurance", authored by Maurice Weinrobe (Clark University) "National
Development Conference" sponsored by NCHEC with HUD support in Washington, DC;
greetings sent by President Reagan and Representative Claude Pepper U.S.
Administration on Aging funds NCHEC information and training project "Home Equity
Financing of Long-Term Care for the Elderly" byBruce Jacobs (University of Rochester)
and William Weissert (Urban Institute)FHA insurance proposal by Sen John Heinz
adopted by Senate;House-Senate conference committee mandates HUD study. In 1984
First open-ended, risk-pooling reverse mortgage offered by American Homestead in New
Jersey SF RAM program and NCHEC provide training and technical assistance to new
reverse mortgage programs in AZ, MA, NY, WI Prudential-Bache announces marketing
agreement with American Homestead Social Security Administration releases policy
memo on treat- ment of income from HEC plans.
In 1985 HUD sponsors conference on home equity conversion.U. S. Senate & House
Aging Committees sponsor joint briefing session for Congressional taffers, moderated by
Ken Scholen Line-of-credit development project initiated by United Seniors Health
Cooperative (DC), directed by Bronwyn Belling First "split-term" RM offered by CT
Housing Finance Agency, designed by Stuart Jennings and Arnold Pritchard . In 1986
"Home Equity Information Center" established by AARP, directed by Katrinka Smith
Sloan American Homestead expands into CT, OH, and PA California Home Equity
Conversion Coalition established by RAM program counselors MA Elderly Equity
Program funded by Commonwealth of Massachusetts, directed by Len Raymond HUD
releases study opposing a federal reverse mortgage insurance demonstration AARP
releases analysis by Ken Scholen critiquing HUD study; AARP urges enactment of
federal RM insurance demo.
In 1996 HECM program re-authorized on January 26, 1996 Fannie Mae begins
lender training for "Home Keeper" NCHEC issues Second Edition of Your New
Retirement Nest Egg: A Consumer Guide to the New Reverse Mortgages by Ken
Scholen, Hartford Life tests annuity complement to HECM and Fannie Mae reverse
mortgages HUD initiates counselor training via satellite TV.
• Any house owner over 60 years of age is eligible for a reverse mortgage.
• The maximum loan is up to 60% of the value of residential property.
• The maximum period of property mortgage is 15 years with a bank .
• The borrower can opt for a monthly, quarterly, annual or lump sum payments at
any point, as per his discretion.
• The revaluation of the property has to be undertaken by the Bank once every 5
years.
• The amount received through reverse mortgage is considered as loan and not
income; hence the same will not attract any tax liability.
• Reverse mortgage rates can be fixed or floating and hence will vary according to
market conditions depending on the interest rate regime chosen by the borrower.
Reverse mortgage in the US
Reverse mortgage was introduced in the US in the late 1980s. Since then, the
number of people pledging their property for reverse mortgage has been on the rise. Take
a look at the numbers.In 1990, there were just 157 people who had opted for this product.
In 2006, 59,781 people opted for reverse mortgage. The concept in India is similar to the
one in the US.To be eligible for reverse mortgage, you should be at least 62 years old and
own a property."In a reverse mortgage, you borrow money using your home as collateral
but there aren't any payments. The interest that is charged is added to the balance owed.
That means you owe more each month. When you die or when the house is sold, the debt
gets paid off," says Jeffrey D. Voudrie, CFP, CEPP, president, Legacy Planning Group
Inc.Once you pledge your property for reverse mortgage, you will receive funds as long
as you live in that property. There are three main sources that home owners can tap in the
US. One of these is the federally insured Home Equity Conversion Mortgage,
administered by the Department of Housing and Urban Development.The majority of
people opting for reverse mortgage go for HECM as it offers the best interest rates and
loan amount. However, if they opt for government-insured reverse mortgages, then they
will also have to pay a fee for Federal Housing Administration insurance that will protect
against the value of the home going below the loan amount.There are also single-purpose
reverse mortgages, offered by state or local government agencies for a specific reason
and, lastly, proprietary reverse mortgages offered by banks, mortgage companies and
other private lenders.People planning a property reverse mortgage have to undergo a free
mortgage counselling from an independent government-approved "housing agency".
Reverse mortgages offered by other financial institutions also require individuals to
undergo similar counselling. "Seniors like this product because it allows them to stay in
their homes and they are not required to make monthly payments," says Voudrie.
However, a concern among most elders is the rising interest rates, which increases the
cost of the loan.
Costs which are to be incurred while going for Reverse Mortgage
• Processing or origination costs: - These are the costs which covers the
bank’s operating expenses for making the loan .This cost can be
financed as a part of the total loan.
• Other fees which include credit report fee for verifying whether any
tax liabilities are there, title search fee, document preparation fee for
loan documents, mortgage recording fee, survey fee, etc.
Risks to RM Lenders
There are some risks faced by a Reverse Mortgage lender. These risks are at the heart of
the reluctance of lenders to get into reverse mortgage lending, in the absence of public
policy support. The principal and unique problem facing the lender is that of predicting
accumulated future loan balances under a reverse mortgage, at the time of origination.
The uniqueness is because reverse mortgage is a ‘rising debt’ instrument. Since reverse
mortgage is a non-recourse loan, the lender has no access to other properties, if any, of
the borrower. Even if the collateral property appreciates in value, it might still be lower
than the loan balance at the time of disposal of the property. The following are the basic
sources of this risk:-
Mortality Risks:-
This is the risk that a reverse mortgage borrower lives longer than anticipated. The lender
might get hit both ways he has to make annuity payments for a longer period; and the
eventual value realised might decline. However, this risk is usually ‘diversifiable’, if the
reverse mortgage lender has a large pool of such borrowers. Possibility of adverse
selection is counterbalanced by the possibility that even borrowers with poor health may
be attracted by Reverse Mortgage’s credit line or lump sum options. However, there is no
literature on one possible source of systematic risk. Since reverse mortgage is projected
to substantially improve the monthly income and/ or liquid funds of the reverse mortgage
borrowers, would it not itself result in a systematically higher life expectancy amongst
them than otherwise, now this is a big question.
Interest Rate Risks:-
Said that the typical reverse mortgage borrower is elderly and is looking for predictable
sources of income/ liquidity, reverse mortgage loans promise a fixed monthly payment /
lump sum / credit line entitlement. However, for the lender, this is a long-term
commitment with significant interest rate risks. While fixing the above, the lender has to
account for a risk premium and thus can offer only a conservative deal to the borrower.
This interest rate risk is not fully diversifiable within the reverse mortgage portfolio.
Most of the reverse mortgage loans accumulate interest on a floating rate basis to
minimize interest rate risks to the lender, like in SBI the interest rates are revised for
every 5 years. However, since there are no actual periodic interest payments from the
borrower, these can be realized only at the time of disposal of the house, if at all.
Liquidity Risks:-
In Reverse mortgage loans where the borrower draws down on his loan through a credit
line, there is a risk of sudden withdrawals.
Risk Mitigation
Risk mitigation is the key for the success of any financial product including reverse
mortgage. Some of the risk mitigation techniques which the providers that is the banker
can apply to reduce the risk on their books are as follow
• Geographical diversification
The lender can look at spreading the business across the country by promoting the
product in secondary and tertiary cities also so that the law of large numbers may work
properly and if the provider has a bad experience in one market; it can be compensated
with good experience in other cities
• Repayment schedule
In the Repayment schedule, some default conditions or changes that affect the security of
the loan for the lender that can make reverse mortgages payable should also be added,
like Declaration of bankruptcy, Donation or abandonment of the house, Condemnation/
Sovereign Takeover of the property by a government agency, adding a new owner to the
home’s title, taking out new debt against the home etc.
is projected to rise from 15% as of now to about 40% in the next four decades
• The percentage of >60 in the population of Tamil Nadu and Kerala will reach
about 15% by 2020 itself.
• Life expectancy at age 60, which is around 17 yrs now, will increase to around 20
by 2020
In addition, as per a survey of the National Sample Survey Organization (NSSO) in 1994,
less than 4% of the elderly lived alone. A 1995-96 National Sample Survey of the elderly
reported that about 5% of them lived alone, another 10% lived with their spouses only
and another 5% lived with relatives/ non-relatives, other than their own children. In other
words, co-residence with children and other relatives is predominant.
However, the following aspects are worrisome:
• The extent and adequacy of support, especially for widows
another metro or abroad with no intention of coming back. They may be much better off
than the older generation and may not value bequests, if any.
Customer Perspective:-
Lender Perspective:-
The major concern is with respect to the risks of longevity, interest rates and property
appreciation rates. There is no simple way to explore these except through financial
modelling. Some alternatives for limiting risks in the learning phase can be suggested as
below.
• It seems worthwhile to explore and lobby for concessional refinance for reverse
mortgage loans from agencies like the National Housing Bank and for lower
reverse mortgage related transaction taxes.
• Given the requirement of property market related expertise at the micro-level, it
might be worthwhile to focus on only one or two cities in the initial phase.
• There might be a need for tie-ups with agencies for various services- property
valuation, title search, property maintenance and so on.
Myths about Reverse Mortgages
The following are some of the myths about reverse mortgage in the minds of the
people which need to be clearly addressed in order to make this product more
attractive and popular.
• The lender will own the home
The applicant and his family will continues to retain ownership of the home.
The Lender does not take control of the title. The lender's interest is limited to
the outstanding loan balance.
• Only the "cash poor" or desperate senior citizens can benefit from the
Reverse Mortgage
Even though some seniors may have a greater need than others for the cash or
monthly income, the Reverse Mortgage can also be an excellent financial or
estate planning tool.
Weaknesses
• This loan product has a maximum tenure of only 15 years. If the borrower
outlives this period, the regular cash flows will stop.
• Basis of property valuation is not clear.
• Requirement of clear title to property in the name of the borrower to get the loan.
• Various fees to be added to borrower’s liability, which can be quite substantial.
Opportunities
• Partial substitute for a social security scheme for senior citizens.
• Increasing number of nuclear families.
• Medical expenses and cost of living going up, increasing the need for additional
income in old age.
• Most Indians have strong preference for own home. Therefore many eligible
citizens may opt for the scheme.
Threats
• Property valuations are ambiguous.
• There is a non-recourse guarantee, which means that loan plus interest should
never exceed realizable value of property. In case of fall in property value or loan
with interest exceeding assessed property value, banks may resort to strong-arm
tactics to force the borrowers to move out, if they live too long after the loan
period is over.
• Rate of interest is at the discretion of lender. Any increase in the rate, if floating,
will increase the burden of the borrower.
• Lender has discretion to raise loan amount on revaluation. However, if it does not
do so, borrower doesn't get loan according to proper value of property.
• Lender has right to foreclose loan by forcing sale of property if borrower doesn't
pay for insurance, property taxes or maintain and repair house.
The following are the important steps which are to be followed by every person who is
going for reverse mortgage.
1. EDUCATION
The applicant must first educate himself about the reverse mortgage by visiting
this website; this will the beginning of reverse home mortgage learning process.
Many banks nowadays send their representatives to the home of the applicants to
explain the benefits of a reverse home mortgage to the homeowner and family or
friends. Any doubts regarding reverse mortgage may be cleared at that time. If the
homeowner has already had HUD counseling OR is ready to proceed with the
process, an application is to be completed. Government has developed some
websites like HUD or AARP which can be visited for details of reverse mortgage.
2. HUD COUNSELING
3. APPLICATION
The loan officer takes the application before or after HUD counseling. The loan
officer carefully explains the Reverse home mortgage program features and
benefits. Some of the forms are Good Faith Estimate, Tax & Insurance
Disclosure, Loan application, Privacy Policy Disclosure. The loan officer will collect
copies of Drivers License or other form of Picture ID, Social Security Card or
Medicare Card, Most recent Property tax statement, Homeowners Fire Insurance
Policy, Most recent mortgage statement.
When both the application and HUD counseling have been completed, you are
ready to start processing the loan. The next step is to order a HUD appraisal and a
termite inspection. If either report reveals things that require fixing, according to
HUD guidelines the borrower can fix these within six months after the close of
escrow. If there are repairs required, a separate “Repair Set Aside” account is
created. Fire insurance is required. In some cases the current policy may be less
than the lender requires and therefore it is necessary to increase the insurance
policy to the current value.
5. CLOSING
When the loan documents are ready to be signed, the loan officer will schedule a
convenient time to come to the home of the applicant in some case with a notary
to go over the documents and sign and date the loan papers. If you choose to have
monthly payment, the funds are wired to your account on the first day of every
month. If you choose a credit line, the funds are wired within five business days
of receiving the request in writing.
6. AFTER CLOSING
You must continue to pay property taxes and insurance. You must also maintain
your home in good repair. Any repairs that are required must be done within six
months of the close date. Proof of required repairs must be sent to the Lender.
• The borrower has not stayed in the mortgaged property for a continuous period of
one year.
• The borrower fails to pay property taxes, home insurance or maintain and repair
the residential property.
• The residential mortgaged property is donated or abandoned by the borrower.
• The borrower makes changes in the residential property that affect the security of
the loan for the lender. For example, renting out a part or the entire house, adding
a new owner to the house's title, changing the house's zoning classification, or
creating further encumbrance on the property either by way taking out new debt
against the residential property or alienating the interest by way of a gift or will.
• The government, under legal provisions, seeks to acquire the residential property
for public use.
• The government condemns the residential property.
Reverse Mortgage in SBI
The State Bank of India (SBI) has started offering reverse mortgage products for senior
citizen on October 12, 2007. Joint loans will be given if the spouse is alive and is over 58
years of age. The loan is be offered by all branches of SBI from October 12, 2007. The
loan is offered at an interest rate of 10.75% pa and is subject to change at the end of every
five years along with revaluation of security. Every five years, bank may even re-adjust
the loan installments, if it is needed, depending on market conditions and loan status. In
an press report The Chief General Manager for Personal Banking (SBI), Mr. Sangeet
Shukla told that there is no upper limit of amount of loan. Also, the maximum period for
availing this benefit is 15 years. Under this loan, borrowers can be avail payment against
the security of their houses on monthly or quarter installments or either he/she can go for
as a lump sum payment at the beginning. During their lifetime, the borrower does not
have to pay the loan and will continue to stay in their house. Thereafter, either the legal
heirs can repay the loan and redeem the property but if this option is not exercised, bank
will sell the property and liquidate the loan. Surplus, if any, will be passed on to the legal
heirs. DHFL and Punjab National Bank are the other competitors along with the SBI.
Reverse mortgage is very popular product in many countries. The scheme offers old
persons with less income to offer their house as mortgage security. The old person will
get a loan from the bank and the bank will keep on paying them for a fixed period. After
the time of loan is over, the bank may either, acquire the property and give the remainder
to the customer’ heirs or they can pay back and keep the property. The scheme is very
good for some people looking for additional money to support their needs at old age.
Reverse Mortgage in SBI, main branch Belgaum:-
As reverse mortgage is offered by all the branches of SBI from October 12 2007,
SBI main branch in Belgaum also started providing the facility of Reverse Mortgage. Due
to lack of knowledge about reverse mortgage in Belgaum there are no any customers for
this product in SBI main branch Belgaum. Recently one customer is willing to take
reverse mortgage from SBI main branch. This deal has not yet been finalized, it is in
process.
The bank pays installments monthly, quarterly and even lump sum. The loan
amount is paid in installment for 10 years or for 15 years as per the requirement and wish
of the borrower.
The following is the table showing the installments on monthly, quarterly basis
for the period of 10 tears and 15 years for a loan amount of Rs 100000 at a interest rate of
10.75%.
Loan Tenor
10 years 15 years
Monthly instalments
468 225
(Rs.)
Quarterly instalments
1,423 687
(Rs.)
Eligibility
• No. of borrowers: - Single or jointly with spouse in case of a living spouse.
• Age of first borrower :- Above 60 years
• No. of surviving spouses on date of sanction of loan :- Should not be more than
one. Borrowers will have to give an undertaking that they will not remarry during
the currency of the loan. If the borrowers choose to remarry, the loan will be
foreclosed.
• Age of spouse :- Above 58 years
• Residence :-
a. Borrower should be staying at self-acquired and self owned
house / flat against which loan is being raised, as his
permanent primary residence.
b. Mobile/Telephone/Credit Card bills/Certificate from the
Housing Society where the borrower is staying /Affidavit made
before the Executive Magistrate may be accepted as proof of
residence.
c. Borrowers will be required to inform the Bank when they cease
to use this residence as their permanent residence.
• Title of the Property :-
a. Borrowers should have a clear and transferable title in their
names
b. Title verification and search report for a period of 30 years will
be required to be obtained from the Bank’s empanelled advocate
at borrowers’ cost.
• Title of the property and number of borrowers.- In case if the title in single name
and loan number of borrowers. availed jointly with spouse. Title holder should
make a Will in favour of the other spouse. The Will should confirm that this is the
last Will and that it supersedes all earlier wills, if any. The borrower to undertake
that no fresh Will shall be made during the currency of the loan
• Encumbrances: - The property should be free from any encumbrances. However
in case of property purchased by availing Home Loan from SBI and mortgaged to
SBI, it will be considered for RML, subject to closure of the Home Loan account
out of the proceeds of RML
• Residual Life of property: - Should be at least 20 years in case of single borrower
and 25 years in case of spouse being below 60 years of age. Certificate from
empanelled engineer/ architect will be required to be obtained for this purpose, in
addition to valuation of property.
Security
The Reverse Mortgage Loan shall be secured by way of equitable mortgage of
residential property.
Tenor
• Age of the younger of the borrowers between 58 and upto 68 years: 15 years
• Age of the younger of the borrowers above 68 years: 10 years
• OR till death of the borrower(s),
Whichever is earlier
Disbursement
By credit to an SB account in the joint names of the borrowers operated by E or S.
Quantum of loan
The loan amount would be 90% of the value of property. Loan amount would include
interest till maturity. The maximum loan amount is kept at Rs. 1 Crore and minimum
Rs.3 lacs
Purpose of Loan
Supplementing income, any personal expenses, house repairs, etc. Loan amount should
not be used for speculative, trading and business purposes.
Repayment/Settlement
• The loan shall become due and payable only when the last surviving borrower
dies or opts to sell the home, or permanently moves out of the home for to an
institution or to relatives. Typically, a “permanent move” may generally mean
that neither the borrower nor any other co-borrower has lived in the house
continuously for one year or do not intend to live continuously. Bank may obtain
such documentary evidence as may be deemed appropriate for the purpose.
• Settlement of loan along with accumulated interest is to be met by the proceeds
received out of sale of residential property or prepayment by borrowers and his
next of kin.
• The borrower(s) or his/her/their legal heirs/estate shall be provided with the first
right to settle the loan along with accumulated interest, without sale of property.
Foreclosure
The loan shall be liable for foreclosure due to occurrence of the following events of
default.
• If the borrower(s) has/have not stayed in the property for a continuous period of
one year
• If the borrower(s) fail(s) to pay property taxes or maintain and repair the
residential property or fail(s) to keep the home insured, the Bank reserves the
right to insist on repayment of loan by bringing the residential property to sale and
utilizing the sale proceeds to meet the outstanding balance of principal and
interest.
• If borrower(s) declare himself/ herself/themselves bankrupt.
• If the residential property so mortgaged to the Bank is donated or abandoned by
the borrower(s).
• If the borrower(s) effect changes in the residential property that affect the security
of the loan for the lender.For example: renting out part or all of the house by
creating a tenancy right; adding a new owner to the house’s title;
changing the house’s zoning classification; or creating further encumbrance on
the property either by way of taking out new debt against the residential property
or alienating the interest by way of a gift or will.
• Due to perpetration of fraud or misrepresentation by the borrower(s).
• If the Government under statutory provisions, seeks to acquire the residential
property for public use.
• If the Government condemns the residential property (for example, for health or
safety reasons).
• Any other event such as re-marriage of the borrower(s) etc. which shall have an
adverse impact on the loan settlement prospects.
• Borrowers do not accept the revised terms on revaluation of property and interest
reset at the end of every 5 years from sanction.
• Any violation of the terms and conditions of RML.
Pre-payment of loan
• The borrower(s) will have option to prepay the loan at any time during the loan
tenor.
• There will be no prepayment penalty.
Interest Rate
10.75% p.a. (Fixed) subject to reset every 5 years.
Processing fee
0.50% of the loan amount, minimum Rs. 500 and maximum of Rs. 10,000
Right of Rescission
As a customer-friendly gesture and in keeping with international best practices, after the
documents have been executed and loan transaction finalized, borrowers will have right
of rescission up to seven days to cancel the transaction. If the loan amount has been
disbursed, the entire loan amount will need to be repaid by the borrower within this
period. However, interest for the period may be waived. Processing fee shall not be
refunded in such cases.
Feasibility study is the likelihood study. It is the way to determine if a business idea is
capable of being achieved. The results which we get out of this study are used to make a
decision whether to proceed with the project or no. I took out the feasibility study to see
the likelihood of Reverse Mortgage offered by SBI.I limited my study only to SBI main
Branch, Belgaum.In order to do the feasibility study of reverse mortgage for SBI main
branch I contacted and surveyed 30 respondents. I prepared a questionnaire in which I
asked the respondents details about their house, whether they get any pension, whether
they are in need of any financial assistance, their knowledge about reverse mortgage and
whether they are willing to go for reverse mortgage or no.
So by this feasibility study we can come to know how many people are need
financial assistance, how many people have some knowledge and how many people are
willing to go for reverse mortgage.
Market Value
Market Value
Cumulative
Frequency Percent Valid Percent Percent
Valid Rs200000-500000 8 26.7 26.7 26.7
Rs500000-1000000 17 56.7 56.7 83.3
Above Rs1000000 5 16.7 16.7 100.0
Total 30 100.0 100.0
Market Value
Above Rs1000000
Rs200000-500000
Rs500000-1000000
Interpretation:
In the sample size of 30 people, 8 people had house whose market value was between Rs
200000 to Rs 500000, 17 people had house whose market value was between Rs 500000
to Rs 100000 and 5 people had house whose market value was above Rs 1000000.
Pension
Pension
Cumulative
Frequency Percent Valid Percent Percent
Valid Yes 22 73.3 73.3 73.3
No 8 26.7 26.7 100.0
Total 30 100.0 100.0
Pension
No
Yes
Interpretation:
In the sample size of 30 respondents 22 people said they get pension and remaining 8
people said they did not get any kind of pension. So by seeing the above chart we can
make a inference that in the sample size of 30 respondents maximum people get pension.
Financial Assistance
Financial Assistance
Cumulative
Frequency Percent Valid Percent Percent
Valid Yes 22 73.3 73.3 73.3
No 8 26.7 26.7 100.0
Total 30 100.0 100.0
Financial Assistance
No
Yes
Interpretation:
Financial assistance refers to whether the respondent is in need of money for his daily
needs. Here out of 30 respondents 73.3% of the people needed financial assistance for
their expenses and remaining 26.7% people did not need any kind of financial assistance
for their daily expenses.
Cumulative
Frequency Percent Valid Percent Percent
Valid Yes 12 40.0 40.0 40.0
No 18 60.0 60.0 100.0
Total 30 100.0 100.0
Knowledge about Reverse Mortgage
Yes
No
Interpretation:
Here knowledge about Reverse Mortgage refers to how many people are aware about the
concept of Reverse Mortgage. So according to my survey of 30 respondents only 40%
that is 12 respondents had a basic idea about Reverse Mortgage and the remaining 60%
that is 18 people did not had any kind of knowledge about reverse Mortgage. So by this
we can say that many people don’t have a basic idea about Reverse Mortgage and the
bank need to focus on spreading the concept of reverse mortgage.
Cumulative
Frequency Percent Valid Percent Percent
Valid Yes 7 23.3 23.3 23.3
No 23 76.7 76.7 100.0
Total 30 100.0 100.0
Willingness for Reverse Mortgage
Yes
No
Interpretation:
As before we saw that only 40% of the respondents had some basic knowledge about
reverse mortgage and after providing the knowledge about reverse mortgage only 7
respondents were willing to go for reverse mortgage. From the above chart we can say
that maximum people feel it is not worthwhile to go for reverse mortgage.
Conclusion:-
For the purpose of feasibility study I conducted a survey of 30 respondents. These 30
respondents were selected on the basis of certain criteria .The first criteria for
selecting the respondents was the age of the respondents should be more than 60 and
the second one is that he should own a house with its title. After conducting the
survey of 30 peoples, 73.3% of the respondents needed some kind of financial
assistance, 40% of the respondents had some basic knowledge about reverse
mortgage, but after giving the details about reverse mortgage to all the 30 people only
7 people were willing to go for reverse mortgage. By the outcomes this study it can
be said that this was not the right time for introducing the concept of reverse
mortgage by SBI.I have also found out that even if the people need some financial
assistance they are not willing to go for reverse mortgage the reasons may be that the
house is only important assets, the elder people would like to transfer their house to
their legal heirs. As we can see in India joint families are more the elder people don’t
like to sell their house they would like to live in the same house and would like to
transfer the house to their legal heirs. So it can be concluded that introdusing reverse
mortgage at this time was not feasible but it may work very well in future.
CHAPTER- 6
FINDINGS AND SUGGESTIONS
Findings:-
• Educate people about reverse mortgage: - As by the survey I have found out that
only 40% of the respondents have some basic idea about reverse mortgage, so by
this it can be said that people are not educated about reverse mortgage. So I would
suggest the bank to educate the people about reverse mortgage through
advertisements, conducting workshops and lectures on reverse mortgage etc.
• Take responsibility for the expenses incurred by the borrower on property
valuation etc: - As it is necessary that the person going for reverse mortgage
should make valuation of his property first, these valuation expenses are incurred
by the applicant himself. During my survey some respondents said that, as they
are aged it is very difficult for them arrange money for property valuation and for
this reason they think going for reverse mortgage is not attractive. So I would
suggest bank to take responsibility of the expenses incurred by the borrower on
property by including it in the total value so that many people go for it.
• Proper eligibility criterions: - In some cases there is a risk of default by the
borrower; this risk can be avoided at the time of providing loans. So in order to
avoid the risk I would suggest the bank to do proper verification of the title of the
property, age of the borrower; his/her credit analysis etc. This reduces the risk of
default by the borrower
• Geographical diversification.:- The bank can look at spreading the business across
the country by promoting the product in secondary and tertiary cities also so that
the law of large numbers may work properly and if the bank has a bad experience
in one market; it can be compensated with good experience in other cities
CHAPTER- 7
BIBLIOGRAPHY
Bibliography:-
1. Websites
www.sbi.co.in
www.google.co.in (Google search engine).
www.wikipedia.com
2. Books
Market Research - Tull and Hawkins
Yes [ ] No [ ]
2. Where it is situated?
------------------------------------------------
Below 200000 [ ]
200001 – 500000 [ ]
500001 – 1000000 [ ]
Yes [ ] No [ ]
Yes [ ] No [ ]
Yes [ ] No [ ]
Yes [ ] No [ ]
Yes [ ] No [ ]