Housing finance types.

i. Home Purchase Loans ii. Home Construction Loans iii. Home Extension Loans iv. Home Conversion Loans v. Land Purchase Loans.

vi. Stamp Duty Loans

vii. Bridge Loans viii.Balance Transfer Loans

ix. Re-finance Loans

x. Loans to NRIs

i. Home Purchase Loans: Home Purchase Loans are the basic home loan you can opt for purchasing new home. This type of Home Loan is offered by all kinds of Banks and HFCs. ii. Home Construction Loans: Home Construction Loans are especially meant for the construction of a new home. Formality of availing this loan has a little different from the normal Housing Loan. The plot on which the construction is being erected is purchased within a period of one year, the cost of the plot is then also included as the component for the valuation of total cost of the property. iii. Home Extension Loans: Home Extension Loans is offered for meeting the operating cost of alteration to an existing building. Extension here means addition of an extra room etc.

iv. Home Conversion Loans: Home Conversion Loans are offered to those who want finance for the purchase of another home by converting the already existing home and on which loan is already sanctioned. Through this loan, the existing loan is transferred to the new home including the extra amount required and there is no need for pre-payment of the previous loan. v. Land Purchase Loans: Land Purchase Loans can be availed for purchasing land for both home construction as well as investment purposes. vi. Stamp Duty Loans: Stamp Duty Loans is offered for the payment of stamp duty in the transaction of the property.

vii. Bridge Loans: Bridge Loans are offered for selling the existing home and purchasing of another. The bridge loan assists in the finance of new home, until a buyer is found for the old home. viii. Balance-Transfer Loans: Balance Transfer of the loan is the transfer of the balance of an existing home loan at a higher rate of interest (ROI) to either the same company or another.

ix. Re-finance Loans: Refinance loans are availed when a loan from an organization at a particular ROI is dropping leading to a loss. Then the option of swap of the loan can be availed. One can avail this from either the same HFI or other at the current rates of interest.
x. NRI Home Loans: NRI Home Loans are meant for NonResident Indians who wish to build or buy a home or

HOUSING FIGURES IN INDIA

Housing Market

Short Supply of residential dwellings, existing since post independence In 2005 estimated demand is 209.5 million, supply is 189.7 Million Demand Supply gap is narrowing As per 11th 5 year plan - Shortage of 24.71 million dwellings - Close to 99 % of shortage in EWS & LIG segment

Category Housing EWS LIG MIG + HIG Total

shortage (Mn) 21.78 2.89 0.04 24.71

(Bill Longbrake Anthony T. Cluff Senior Policy Advisor Financial Services Roundtable February 2008)

Housing Finance
The value of total residential mortgage debt moved up from USD 1.84 billion in 1994 to USD 12.26 billion in 2004, as in 2007 there were 7.1 million subprime loans ,constituting 13.3% of total loans serviced. Interest rates on housing loans have fallen from a peak of 17% in 1996 to 7.5% last fiscal making owning a home more affordable. Traditionally housing finance was dominated by a handful of private sector institutions. Salaried borrowers constitute the bulk of the clientele for the financier in comparison to the self-employed borrowers Traditionally housing finance was dominated by a handful of private sector institutions. These Housing Finance Companies (HFCs) commanded 70% market share in FY99, which has subsequently fallen to 50% in FY04. Banks now control 40% of this market

Government Policy & Objectives

In the Tenth-Five-Year-Plan; a CAGR of 45%. Prior to that, the Government of India was generally not supportive of housing finance through its policies. Larger allocation of public funds, fiscal incentives and tax rebates on principal repayment and Equated monthly instalments (EMIs) . A welcome move recently announced by the government is that 100% Foreign Direct Investment (FDI) in India would be allowed in townships, housing, built-up infrastructure and construction-development projects. A lot remains to be achieved with regard to issues surrounding regularization of land records, urban land ceiling act, rent control act etc.,

Summary Data for India FY94-FY04

94 1 2 3 4 5 6 7 8
Real GDP Growth

95 96 97 98 99 00 01 02 03 04
7.25 7.34 7.84 4.79 6.51 6.06 4.37 5.78 3.99 8.51

5.9

Residential mortgage debt USD (bn) 1.84 2.1 2.13 2.24 2.59 2.94 4.28 5.56 6.88 8.89 12.26 outstanding Residential debt / GDP 0.58 0.61 0.58 0.56 0.62 0.67 0.91 1.19 1.45 1.74 2.21 % Ratio Residential mortgage debt USD 11.58 12.85 12.67 12.98 14.63 16.17 22.87 28.98 35.79 55.88 77.08 per household No. of Households Home ownership rate Interest rates on Housing loans Exchange Rates

bn % % --

159

163

168

172

177

182

187

192 ---

192 ---

198 ---

203 --7.65

86.42 86.46 86.5 86.54 86.58 86.62 86.66 15.5 31.37 17 17 16 14.5 13.5 13

12.15 11.35 9.85

31.4 33.45 35.5 37.16 42.07 43.33 45.68 47.69 48.4 45.97

(Central Statistical Organization- Government of India, Annual Economic Surveys tabled in the Indian Parliament.)

Ideal Housing finance mechanism

BORROWERS/USERS
Supply of credit Housing credit portfolio Continuity of new lending Market shares Loan amounts + periods of redemption Credit availability Collateral requirements Income ratios Number of customers Third party lending

Credit affordability Mortgage rates and fees Spreads and real interest rates Liquidity Interest rate risks

LENDERS/INVESTORS
Investment attractiveness Maturity of investment Share of institutional investors Yields Spreads and real interest rates
Security of funds Inflation and reinvestment risk Solvency Credit risks Capital adequacy Profitability for shareholders Cost efficiency Net income and margins Return on equity assets Cost-income ratios

GOVERNMENT/ POLICY MAKERS

Achievable indirect benefits Housing outcomes and national income Financial depth Economic prerequisites Macro-economic stability Willingness Institutional prerequisites Legislation Regulation and supervision Sector specific prerequisites Degree of financial development Quality of residential infrastructure, construction sector and rent level Efficient Housing Finance System Homeownership promotions

Credit Crisis in housing industry

Stagflation =Recession + Inflation

Recession= General slowdown in economic activity.

Inflation = Prices go up , since worth of money is less.

Credit Crisis?
It is a world wide financial fiasco involving the terms:

Sub prime mortgages Collateralized debt obligations.. Credit default swaps.

Who is affected?

EVERYONE

How?
Home owners (mortgages).

Banks and brokers

WALL STREET
Investors (Money)

Mortgages represent houses.

Money represents institutions(pension funds, insurance companies, mutual

funds etc.)

Earlier?
Investors , put their money in federal reserve to get treasury bills
and obtain good rate of return. After 9/11, the interest rate was turned to only 1% resulting in bad investment (Allen green , chairman). Banks purchased a lot of cheap credit from federal reserve turning to leverage(borrowing money to amplify the outcome of a deal). Wall street made a lot profit and attracted investors.

Home owners

Bank (mortgages)

Investors

Down payment

Home owner/Buyer

Mortgage broker

Mortgage Lender

Mortgage

Housing prises rise practically

Home owners lend money from lenders and get a house. Investment banker borrows money and buys lot of mortgages. Banks started receiving a lot of money (instalments) from home owners.

Investment banker
Buys the mortgages from lender at a nice profit.

Investment banker/bank.

Many mortgages

CDO(Collateralize d debt obligations.

Banks insures these CDO for a fee and Credit

CDO

Safe. 3%

default swaps, is created.

Sells Safe to investors. Sells okay to other banks. Sells risky to risk takers of share markets. Thus bans make huge money and repays the loan.

Okay. 7%
Risky. 10%

Everything was going fine, investors want more mortgages, called investment banker. Investment banker calls mortgage lender to find more buyers. But not much buyers in the market.

No down payment, no proof of income etc. required Mortgage Lender More home buyers

As housing prices always rise, house is the security for their for their loan. Loans were given to less responsible people called Sub prime mortgages. Same process repeats, everybody making profit, until homeowners default on payment of instalments. All cash flow to CDOs turned into houses, which people were not ready to purchase. As neighbourhood houses were foreclosed, and for loaned, property prices start to fall, responsible people also sold their house and left.

Investment banker/bank.

NO

Risk takers.

NO

NO
Other banks.

Investors
Investment bankers borrowed millions of dollars bonds. No one was ready to purchase. All CDOs remains with him.

Other banks and investors faced the same challenge.

Brokers and lenders are out of the system. Whole system collapsed, massive bankruptcy occurred. Moreover home owners investment also went worthless.

THANK YOU !!!!!