Mortgage - Home Loan, Commercial Loan

Continuing the flow of home loans and accessing low-cost deposits are two key elements of the government’s instructions to public sector banks.

Sources said that the two issues will figure prominently during Finance Minister P Chidambaram’s meeting with the heads of 28 state-run banks on Wednesday.

While almost all public sector banks have increased the prime lending rate, they have opted to keep the interest rate on home loans up to Rs 30 lakh and education loans unchanged.

When Chidambaram meets the bank chiefs he wants a specific report on the flow of loans under these two segments along with their first quarter performance. The review of non-performing assets and other key parameters will also come up for discussion.

According to the latest Reserve Bank of India data, the growth in the overall home loan portfolio had slowed down to 13.8 per cent till May-end this year, compared to 21.6 per cent last year.

As of May 23, 2008, the total outstanding home loans were estimated at Rs 2,62,486 crore (Rs 2,624.86 billion). The year-on-year variation in the housing loan portfolio till May 23, 2008 was estimated at Rs 31,735 crore (Rs 317.35 billion), compared to Rs 41,066 crore (Rs 410.66 billion) in the corresponding period last year.

The finance ministry has asked banks to ensure that the flow of loans for the purchase of consumer goods, as also home loans, does not slow down though RBI has specifically targeted these segments in its efforts to moderate the credit growth.

Though bankers maintained that there are no instructions to push home loans, even those up to Rs 30 lakh (Rs 3 million), they have argued that the move to keep rates intact for existing customers is aimed at checking defaults.

“These loans are part of priority sector lending and borrowers in this segment need to be supported. A higher loan growth in this segment will spur consumption, which is good for the economy,” added a public sector bank chief.

While a senior State Bank of India [Get Quote] executive did not disclose the growth in the home loan portfolio during April-June he said, the bank with outstanding of Rs 46,000 crore (Rs 460 billion) in its home loan portfolio, has seen its portfolio grow across the country. In the semi-rural and rural sector alone, the home loan portfolio is close to Rs 13,000 crore (Rs 130 billion).

The other issue on the seven-point agenda for Chidambaram’s meeting is accessing low or lower cost funds. Bank of India chairman and managing director T S Narayanasami said public sector banks have not leveraged their reach. “It is time to transform the work culture, be cost effective and get more low cost resources,” he said.

Narayanasami, who is also the chairman of Indian Banks’ Association said, banks will need to raise more deposits to meet the credit expansion targets.

An SBI executive said that the use of debt cards was one way in which the bank was looking to increase the share of CASA.

The Federal Home Loan Bank of Pittsburgh said net income rose 1.7 percent to $53 million, or $1.31 a share, for the second quarter.

Results enabled the wholesale lender to set aside $5.9 million for affordable housing programs in 2009, vs. $5.8 million this year.

Total assets stood at $98.6 billion as of June 30.

The Pittsburgh bank is one of the nation’s 13 home loan banks, with 333 member institutions in Pennsylvania, Delaware and West Virginia.

MIAMI — Florida’s chief financial officer is calling for the state’s top mortgage regulator to step down after a newspaper report found that thousands of people with criminal records were allowed to work in the mortgage industry.

In addition to Don Saxon’s resignation, Florida CFO Alex Sink is also calling for an executive order to stop issuing and renewing mortgage broker licenses to convicted felons.

On Sunday, the Miami Herald reported that more than 10,000 people with criminal records were allowed to work in Florida’s mortgage industry. Of those, more than 4,000 cleared background checks despite committing crimes that state law requires regulators to screen, including fraud, rackateering and extortion.

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what’s in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from personal comments and remarks that are off point. In order to post comments, you must be a registered user of MiamiHerald.com. Your username will show along with the comments you post. Not a registered user? It’s Free! Register here. Thank you for taking the time to offer your thoughts.

For more than a decade, Fannie Mae and Freddie Mac, the housing giants that make the U.S. mortgage market run, have attracted overseas investors with a simple pitch: The securities they issue are just as good as the U.S. government’s, and they usually pay better.

The marketing plan worked.

About one-fifth of securities issued by the Federal National Mortgage Association — Fannie Mae — and the Federal Home Loan Mortgage Corp. — Freddie Mac — and a handful of much smaller quasi-governmental agencies, about $1.5 trillion worth, were held by foreign investors at the end of March. One of every 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States.

Now that the two companies are at risk, how their rescue is handled will ultimately test the world’s faith in American markets. It could also influence the level of interest rates and weigh on the strength of the dollar for years to come, analysts say.

“No less than the international perception of the credit quality of the U.S. government is at stake,” said Richard Hofmann, an analyst with CreditSights, an independent research house with offices in London and New York.

Also at stake is Americans’ future ability to gain access to credit. If foreign companies and governments abandon U.S. investments, home, auto and credit card loans will be much harder to come by.

That helps explain why Treasury Secretary Henry Paulson is pressing U.S. lawmakers for the authority to inject unspecified billions of dollars in cash into either Fannie Mae or Freddie Mac, or both. The “blank check” nature of his request has raised concerns on Capitol Hill, but Paulson is betting that Congress is even more fearful of the consequences of doing nothing to rescue Fannie Mae and Freddie Mac.

Asian institutions and investors hold about $800 billion in securities issued by Fannie Mae and Freddie Mac, mostly in China and Japan.

In Europe, roughly $39 billion in Fannie and Freddie debt is held in Luxembourg and $33billion more in Belgium, countries that are home to large investment management firms. Investors in Britain hold $28 billion, and Russian buyers hold $75 billion. Sovereign wealth funds in the Middle East are also believed to be big investors in Fannie and Freddie debt.

The trillions of dollars in securities issued by Fannie Mae and Freddie Mac and backed by American mortgages were never explicitly guaranteed by the U.S. government, but foreign and domestic investors alike have always believed, because of the companies’ integral role in the housing market and their marketing pitch, that the guarantee would be backed up if it were tested.

As the U.S. government’s debt, and the corresponding amount of Treasury securities, shrank in the late 1990s, foreign investors with currency reserves needed a safe alternative to park their cash. Fannie Mae and Freddie Mac stepped up their overseas marketing efforts and, with the help of Wall Street banks, sold billions of dollars in securities overseas.

Asian banks and insurers bought Fannie’s and Freddie’s paper because it gave a little more yield than a straight Treasury note — “the same risk at a better price,” said Deborah Schuler, an analyst with Moody’s Investors Service in Singapore.

Investment managers at Asian banks and governments are “very comfortable with the idea of implied government support” because it is so prevalent in Asia, she said.

Still, this week’s congressional debate on the issue “is going to worry people,” Schuler said, though she, like most analysts, is confident that Washington will deliver, just as it has in past financial crises such as the savings-and-loan industry bailout of the late 1980s and early 1990s.

Because America’s relations with a host of countries are intricately tied to Fannie Mae and Freddie Mac, the only realistic option open to lawmakers may be to hand the Treasury Department that blank check, analysts say.

The two housing agencies have always been fierce competitors, and they made no exception in their expansion into international markets. Top executives wooed governments, banks and insurance companies in Asia and Europe, and lent executives to help foreign governments, including Russia and Hong Kong, set up their own American-style mortgage markets.

Questions about Fannie Mae and Freddie Mac have prompted individual institutions and governments in Asia and Europe to specify their exposure in recent days, but so far international concern has been limited.

Ingo Buse, a spokesman for Zurich Financial Services, Switzerland’s largest insurer, said it held $8.3 billion in mortgage securities backed by Freddie Mac or Fannie Mae, and felt “comfortable with our position and asset allocation.”

Swiss Reinsurance, Switzerland’s largest reinsurer, said Wednesday that it held $9.6billion of corporate debt from Freddie Mac and Fannie Mae and $12 billion in mortgage securities backed by the two companies.

Its holding of Freddie Mac and Fannie Mae shares is minimal, it said.

Hannover Re, Germany’s second-largest reinsurer after Munich Re, said it held $199million in Freddie Mac and Fannie Mae securities. “We are not worried about the exposure,” said Stefan Schulz, a spokesman for the company, “because we expect the U.S. government to step in if there is any problem.”

Mortgage finance business is set to achieve astonishing feat in Tanzania as banks and specialised mortgage financing dealers make daring market debuts.

The latest market entry was marked last week by Tanzania Mortgage company (T-Mortgage) services, a subsidiary of T- Mortgage North America Business Development.

In May this year, Stanbic Bank launched a home loans product as well.

These developments are a direct response to the April enactment of Financial Leasing Act (2007), an important outcome of the government�s spearheaded second generation of financial sector reforms initiative.

During the launch of Tanzania Mortgage Company, Pamela Karabani, a Tanzanian living in United States and development manager of the parent company said their services would help reduce problem of decent housing deficit Tanzania.

Up to moment, she said, the housing deficit is estimated to be between 2 to 3 million units and is it increasing by the years.

Tanzania has a population of over 35 million but there are about 7 million homes only.

To address the growing housing deficit, she urged the government to collaborate with stakeholders to ensure that the mortgage industry grows at a reasonable pace, by removing all impediments which hinder the ordinary man to own a house.

In line with such concerns, incidentally raised earlier by other interested stakeholders, a draft Unit of Titles Bill, as well as a draft miscellaneous Bill to amend four laws, namely, the Land Act 1999; the Land Registration Act; the Civil Procedures Act; and the Magistrate Court Act have already been prepared.

A Mortgage Finance Bill would also be enacted this year.

Typical reform projects in second generation of financial sector reforms would involve the implementation of home mortgage finance and a secondary mortgage market.

Speaking at the same event, the T- Mortgage Chief executive officer, Prof Charles Inyangete, said over the past several years it has become apparent that home ownership in Tanzania is under-served.

He said due to various problems home ownership in Tanzania is often a difficult and lengthy process.

For that reason, he said his company would work directly with residential property developers to “ensure their customers have ability to easily get quality properties, allowing them to move in quickly, while paying for the home gradually over a period of 15 years“.

Up to the moment the company has secured more than 1,000 houses in Arusha, Mwanza and Dar es Salaam regions which would be loaned to small and medium income earners.

For his part, the Panafra (T) President Salim Zagar, said they have been impressed by the efforts the company was making to support property developers with products, processes and services which encourage and enable an increased housing inventory to be made available to a wider segment of Tanzanians.

A good number of houses built in Tanzania lack title deeds which also in turn hinder their valuation and free transfer.

This prompted launching of Property and Business Formalisation Programme (PBFP) during third phase government of President Benjamin Mkapa.

It aims at freeing and strengthening the informal sector and integrates it into the mainstream economy.

About 75 percent of the properties of about 9.2m urban dwellers in Tanzania have been neither surveyed nor formalised.

BIG banks are routing non-bank lenders in the battle for home loan market share, winning back large chunks of business once lost to their more nimble and cheaper competitors.

In a reversal of a decade, banks are now writing 17 out of every 20 new housing loans — close to 85 per cent — as their mortgage competitors struggle with the burden of higher wholesale funding costs brought on by the US economic crisis.

Aussie Home Loans, once the biggest thorn in the side of the banks, this week launched a “We’ll match you” advertising campaign to try to stem the loss of market share.

Executive chairman John Symond said 99 per cent of the 10,000 borrowers seen in the past two months were able to get a better deals.

It is estimated that non-bank lenders have seen their share of the total home loan market slashed by two-thirds in the past year as the global credit crunch hits home.

The bank winnings come amid a hike in lending rates, forced in part by rising world interest rates and the phasing out of 12-month introductory discount interest rate loans, more often called honeymoon deals.

All housing lending is off sharply, with lending commitments 13.5 per cent lower in May than a year ago — the weakest annual growth in 16 years.

Bureau of Statistics data shows that wholesale lenders, mainly in the non-bank sector, provided 4 per cent of housing finance in May, down from 13 per cent a year earlier. Banks won as much as 90 per cent of the $13.6 billion home loan market in the same month, up from 79 per cent in May 2007.

CommSec Securities calculated the bank’s shares at a record 86.6 per cent, up from 78 per cent 10 months ago, and said it was likely to grow.

Equities economist Savanth Sebastian said: “Banks continue to pick up market share, with the cost of borrowing for non-bank financial institutions still a lot more expensive when compared with the big banks.

“Over the last month, the cost of wholesale borrowing has started to blow out — trending in a manner similar to when Bear Sterns collapsed in March,” he said. “Banks are well placed to increase market share in coming months as less competitive non-bank lenders are priced out of the market.”

Other lenders to lose share are building societies, whose share of the mortgage market has almost halved to 1.5 per cent from 2.8 per cent. Credit unions were not as hard hit.

A senior analyst with financial industry research group Cannex, Harry Senlitonga, said the non-bank share of the mortgage market had fallen as higher global borrowing costs forced them to offer fewer products.

Mr Senlitonga said non-bank lenders, which were more exposed to the global credit crunch, would have to phase out discount interest rate loans.

“Many institutions say this is not sustainable in the longer term,” he said. “At the moment, it’s a tough time for them because funding costs are increasing.”

Non-bank lender Resi is offering the Low Start Loan, which charges 7.99 per cent interest for the first year of a mortgage. After that it reverts to 8.99 per cent.

Commonwealth Bank, which raised its standard variable lending rate by 14 basis points to 9.58 per cent last week, is offering a 12-month discount introductory interest rate of 8.55 per cent.

Warren O’Rourke, spokesman for loan broker Mortgage Choice, said global banks like ING and Halifax Bank of Scotland, which owned BankWest, were benefiting as the banks increased their share of the mortgage market.

Additional reporting: AAP

WARWICK – Rhode Island-based Home Loan Investment Bank recently laid off about 30 employees as the company shifts its focus from mortgages to commercial loans in the wake of major disruptions in the home loan industry.

Brian Murphy, CEO of the privately held company, this week confirmed the layoffs but insisted that Home Loan Investment Bank remains profitable. “We had to get down to the right size,” Murphy said. “We’re not sticking our head in the sand and hoping everything turns around. We’re adjusting.”

The bank – whose Web site sets the size of its local staff at more than 275 – said it continues to be a “strong, conservative and well-capitalized banking institution.”

“With over three times the capital required by its federal regulators, the bank is considered a well-capitalized institution,” Home Loan said in a statement.

The 49-year-old Home Loan Investment Bank – a federally chartered financial institution that does business in 25 states – still has six or seven employees originating mortgages, according to Murphy. But home loans have become a less significant part of the business as the mortgage industry has imploded in the past year and the housing market has cooled.

Layoffs are nothing new in the financial-services sector. One trade group said 86,000 jobs nationwide were cut in 2007 as a result of the subprime turmoil. An industry research firm had predicted another 130,000 jobs would vanish by the end of 2008.

Like many other banks and mortgage companies, Home Loan Investment Bank has instituted layoffs over the past year as the market has deteriorated industry-wide. Murphy said his company has gone from about 275 employees in 2005 to about 140 employees now.

But, he said, there won’t be any more layoffs. “We’re holding on to our core people,” he said.

In the meantime, the company’s commercial loan business – which centers on government-guaranteed loans – has picked up significantly, going from about $28 million in commercial loans in 2006 to $40 million in 2007. Murphy projects that the company will do as much as $90 million in commercial loans by year’s end.

Murphy said 85 percent of Home Loans Investment Bank’s revenue came from residential lending before the mortgage crisis – now 80 to 85 percent of its revenue is derived from commercial lending.

“The reduced headcount enables the bank to more efficiently originate mortgages during these difficult times,” the statement said, “and places the bank in an excellent position for future growth.”

INDIANAPOLIS, Feb. 22, 2008 (PRIME NEWSWIRE) — On February 19, 2008, the Board of Directors of the Federal Home Loan Bank of Indianapolis (FHLBI) elected Paul D. Borja, Executive Vice President and Chief Financial Officer of Flagstar Bank, Troy, Michigan, to fill the unexpired director term of Mark A. Hoppe, who had been elected by the Michigan shareholders to a term ending December 31, 2010. Mr. Hoppe became ineligible to serve as a director of the FHLBI when he ceased being an officer of a member institution.

At Flagstar Bancorp, Inc., Mr. Borja has served as Executive Vice President of the company and the bank since May 2, 2005, and also as its Chief Financial Officer since June 20, 2005. Previously, he was a partner with the law firm Kutak Rock LLP, Washington, DC, from 1997 through 2005.

Mr. Borja received his master’s degree in tax law from Georgetown University in 1991, his law degree from Georgetown University in 1990, and his bachelor’s degree in accounting from the University of Notre Dame in 1982.

Also on February 19, 2008, the Federal Housing Finance Board announced the appointment of Elliot A. Spoon, Esq. to one of the two open appointed director positions on the FHLBI’s board for a term ending December 31, 2010. Mr. Spoon is Of Counsel with Jaffe, Raitt, Heuer & Weiss, PC, a law firm in Detroit, Michigan, and also is a professor at Michigan State University DCL College of Law.

Mr. Spoon graduated cum laude with a JD from the University of Michigan in 1975, having earned his bachelor’s degree with high distinction from the University of Michigan in 1973.

Building Partnerships, Serving Communities.

The Federal Home Loan Bank of Indianapolis (FHLBI) is one of 12 regional banks that make up the Federal Home Loan Bank System. FHLBanks are government-sponsored enterprises created by Congress to ensure access to low-cost funding for their member financial institutions. FHLBanks are privately capitalized and funded, and receive no Congressional appropriations. The FHLBI is owned by its financial institution members, which include commercial banks, credit unions, insurance companies, and savings banks headquartered in Indiana and Michigan. For more information about the FHLBI and its Affordable Housing Program, visit http://www.fhlbi.com.

If you want to borrow a lot of money for college, you are not going to like what the mortgage mess is doing to you.

The credit crunch, which started with a panic over people missing home loan payments several months ago, has spread like a disease, infecting a broad range of loans. Now it may poison opportunities for college students to obtain some loans and is adding painfully high interest costs to many.

So far federal student loans, or the low-interest college loans offered under government rules, are still plentiful. Students who get Stafford loans pay 6.8 percent interest, which is relatively low compared to other loans available for college.

But concerns developed earlier this month because some lenders have decided to stop giving out student loans. The lenders reached the decision because they had trouble borrowing money themselves. And they need to borrow money in order to lend money to students.

The issues sprang from mortgage problems. As homeowners have been missing payments, banks and other lenders have taken billions of dollars in losses. Lenders have become gun-shy, fearful that if they lend money they won’t be paid, and concerned because bond investors won’t buy the packages of loan payments that are critical in funding new loans.

These investors are aware that during the last few years, lending practices became sloppy. They aren’t sure what loans to trust and what loans are suspect. As a result, the process of handing out money — whether to homebuyers, college students or car buyers — has been paralyzed.

Until lenders and investors start feeling safe again, they are expected to hold on tightly to money.

That could mean that students who seek loans may have difficulty. They might have to turn more to higher-interest private loans. And in this environment, families without good credit could be turned away or charged a lot, said Mark Kantrowitz, publisher of FinAid.org.

There is no way to know if the problem will subside quickly or last into summer, a time when incoming college students might be seeking loans. The credit-crisis problems have been worsening since last summer.

Two months ago, “I would never have said that colleges could run short” of student loan money, said Andrew Davis, executive director of the Illinois Student Assistance Commission. “Now, I’m not so sure.”

For the moment, the federal government is trying to reassure students. A spokesman for the Department of Education said that if there is any slack in lending, it will step in by granting more loans at the 6.8 percent rate.

But it is also hinting at potential problems. Although the program could accommodate additional schools and the students and families they serve, the spokesman said, “The department is concerned the benefits of the (Federal Family Education Loan program) could diminish as a result of fewer lender participants.”

In other words, it’s possible the government wouldn’t be able to pick up all the slack if the credit crunch lasts long.

To appreciate this, you must understand that students receive federal Stafford loans in two ways. About 20 percent come from the government directly. The other 80 percent come from lenders who follow government rules, such as charging no more than 6.8 percent interest. But those lenders depend on borrowing money. The government doesn’t have to borrow money from any source but the U.S. Treasury.

Davis said it would be a “bureaucratic nightmare” for the government to try to take on a 400 percent increase in loans.

He suggests that families immediately fill out their FAFSA forms, the financial aid forms students must complete, along with a tax return for their family, in order to qualify for a low-interest federal loan. That way a student may qualify early for aid instead of taking a chance on a shortage later. “Rest assured, if you are the last guy to ask for a loan, you might not get one,” Davis said.

He suggests staying on top of the process by following up with a student’s college financial aid office.

The Moorpark City Council unanimously voted Wednesday to reinstate a loan program that funds repairs on mobile homes in the city.

The program is funded through a CalHome grant administered by the Department of Housing and Community Development. It originally was approved in fiscal year 2002-03 to provide $420,000 in loans for repairs on 25 mobile homes in the Villa del Arroyo area on Collins Drive. Funds have typically been used for roofing, plumbing, water heaters, electrical repairs, heating and air conditioning, and skirting around the mobile homes.

Payment on the original loans was deferred for 15 years, but money repaid so far has been deposited into a special reuse account, as required by CalHome regulations.

The council’s approval to reinstate the loan program will allow about $74,324 that was repaid to be used by Villa del Arroyo mobile home owners. Only low- or very low-income applicants can qualify for the loans.

Nancy Burns, senior management analyst for the city, said residents at Villa del Arroyo have contacted the city staff to inquire about the availability of funds for needed repairs.

“Because of the nature of these homes, not being permanently attached to real property, obtaining loans for repairs can be more difficult than obtaining a loan for repairs on a conventional home,” Burns said.