HOUSING Board (HDB) flat buyers taking private bank loans for their purchase will now have to fork out more cash for the downpayment on their homes.

The Government has lowered the home loan amount that buyers can borrow from banks from 90 per cent to 80 per cent of the total purchase price.

The new 80 per cent rule, also known as the loan-to-value (LTV) limit, will apply to both private and public flats.

But for those buying HDB flats with HDB loans, the LTV will still remain at 90 per cent.

In a joint statement on Friday, the Ministry of National Development, Ministry of Finance and the Monetary Authority of Singapore said that this is because HDB flats are already subject to other criteria to prevent speculation and encourage financial prudence.

For example, there is a minimum owner occupation period of three to five years and a restriction on ownership to one flat per household.

HDB loans are offered to only eligible first-time flat buyers or second-timers who are upgrading.

Housing analysts said that the new measures would have an impact on the HDB market. Buyers who are not eligible for HDB loans must now fork out a higher downpayment as they can only borrow up to 80 per cent of their home purchase price.

This could depress the amounts of cash upfront paid to the seller above the flat’s valuation, known as cash-over-valuation, since buyers are now less likely to have excess cash.

Source: Straits Times, 19 Feb 2010

FINANCIAL institutions in Singapore have remained prudent in giving out housing loans.

Currently, less than 10 per cent of housing loans are granted at over the 80 per cent limit, ‘although there are signs that more housing loans are originating at higher loan-to-value bands’, said a government statement on Friday.

In a further bid to temper exuberance in the private residential market, the Government will, from Saturday, cap all housing loans at 80 per cent of the total purchase price, from the current 80 per cent limit.

The lower cap will apply to all housing loans given by financial institutions regulated by the Monetary Authority of Singapore.

‘In line with the objective of ensuring a stable and sustainable property market, lowering the LTV limit sends a clear signal to the financial institutions to maintain credit standards, and encourages greater financial prudence among property purchasers,’ said a Government statement on Friday.

Source: Straits Times, 19 Feb 2010

Proposal to exclude sub-prime from mandated targets

Fannie Mae and Freddie Mac would no longer be able to rely on sub-prime mortgages to meet their government-mandated goals for helping lower-income Americans obtain home loans, according to proposed regulations.

The rules offered by the Federal Housing Finance Agency would restrict the companies from using private-label bonds backed by Alt-A and sub-prime mortgages, or commercial mortgage-backed securities, to meet affordable-housing targets.

Fannie Mae and Freddie Mac, the largest sources of money for US residential mortgages, had been relying on riskier private-label debt to satisfy goals of financing loans for low- and moderate-income homebuyers, according to FHFA.

Fannie Mae and Freddie Mac were seized in 2008 largely because of regulators’ concern that the companies wouldn’t have enough capital to cover losses on that type of debt.

‘The results of providing large-scale funding for such loans were adverse for borrowers who entered into mortgages that did not sustain homeownership and for the enterprises themselves,’ the agency said in the proposal.

Private-label, or non- agency, bonds are issued by banks and don’t carry guarantees by Fannie Mae, Freddie Mac or government-agency Ginnie Mae. Freddie Mac held about US$176 billion in non- agency debt in its US$755.3 billion portfolio as of December, according to its monthly volume summary. Fannie Mae had about US$90 billion in its US$772.5 billion portfolio.

The companies have been required to devote a certain amount of their annual business to low- and moderate-income borrowers, economically depressed neighbourhoods and other disadvantaged groups. Those goals were modified after the companies were seized by regulators in September 2008.

At least half the dwellings the companies helped finance with their more than US$500 billion in total mortgage purchases in 2008 were used to satisfy affordable housing goals, according to calculations from company filings.

The new affordable-housing rules would also forbid Fannie Mae and Freddie Mac from counting second-lien debt such as home-equity and ‘piggy-back’ loans and the financing of some rental units toward the goals. It would also change how the companies account for multi-family financing.

Much of the new structure is set out in the 2008 law that created FHFA and strengthened oversight of Fannie Mae and Freddie Mac. The rules would establish separate targets for multi-family and owner-occupied properties as well as set efforts to include poorer borrowers than before, the FHFA said.

Edward DeMarco, FHFA’s acting director, said in a letter to lawmakers earlier this month that he doesn’t expect Fannie Mae and Freddie Mac to take on as many risks to fulfil their affordable-housing missions in the future.

FHFA reiterated that statement in the proposal, saying it doesn’t intend for the companies ‘to undertake economic or high-risk activities in support of the goals’ it proposed.

Fannie Mae, which dates back to the 1930s, and Freddie Mac, started in 1970, were chartered by the government primarily to lower the cost of homeownership. Fannie Mae has posted US$120.5 billion in net losses in the nine quarters ended in September and requested US$59.9 billion in Treasury aid to remain solvent. Freddie Mac has lost US$67.9 billion and sought US$50.7 billion in taxpayer-funded aid.

Source: Business Times, 19 Feb 2010

Aim is to hold only US govt securities in its portfolio

Federal Reserve officials set a long-term goal to keep only US government securities in their portfolio as they debated how and when to pull back on the most aggressive monetary policy in US history.

Central bankers are planning to eventually remove US$1.43 trillion of housing debt from the balance sheet after critics such as Stanford University economist John Taylor accused them of straying beyond monetary policy. Philadelphia Fed President Charles Plosser said on Wednesday that the Fed’s purchases of housing debt expose it to demands from politicians to support other industries.

Some of the Fed’s emergency actions ‘blurred the line between monetary policy and fiscal policy, thereby increasing the risk to the Fed’s independence,’ Mr Plosser said in a speech. ‘These policies have veered toward deciding how public money should be allocated across firms and sectors of the economy.’

Policy makers agreed that it ‘will eventually be appropriate’ to ‘return to holding only securities issued by the US Treasury,’ according to minutes of their Jan 26-27 meeting released on Wednesday.

‘They are putting down a marker, as much as a signal to the administration as anything else, that they don’t want to be in the credit-allocation game,’ said Dino Kos, managing director at Portales Partners LLC in New York and former executive vice president at the New York Fed.

US central bankers are channelling credit to housing markets through purchases of US$1.25 trillion in mortgage-backed securities and US$175 billion in housing agency debt. Those programmes end next month. Chairman Ben S Bernanke has said the purchases are needed to support housing markets, whose collapse triggered the worst crisis since the Great Depression.

Fed officials in their January meeting also agreed that it would ’soon be appropriate’ to raise the discount rate, at which banks borrow directly from the central bank, and reduce the maturity of the loans to overnight from 28 days.

The Fed’s actions to combat the financial crisis have created scrutiny of the central bank in Congress, which is taking up the most extensive rewrite of financial regulation since the 1930s.

The House voted on Dec 11 to approve a proposal by Representative Ron Paul, a Republican from Texas, to end a ban on audits of monetary policy over Mr Bernanke’s warnings the measure threatens to compromise Fed independence.

The Fed typically uses the purchase and sale of Treasury securities to change the benchmark federal funds rate by making bank reserves less or more available. At the start of 2007, the central bank’s securities portfolio was made up of mostly Treasuries.

Allocating Credit Before the crisis, the Fed avoided allocating credit to specific markets. In a study of open-market operations published in 2002, the central bank’s staff warned about changing the composition of the Fed’s portfolio.

The mission of the Fed ‘is statutorily cast in terms of macroeconomic outcomes,’ the document said. ‘Outcomes for specific sectors and for relative prices of credit or assets are within the purview of private markets and fiscal policy.’ A return to a policy of holding only Treasury securities, even if it’s a goal for now, indicates Mr Bernanke is seeking to assure investors the Fed is committed to independence and to its mandate to maintain stable prices and full employment, former officials said.

‘What the Fed is doing is showing markets a rope,’ said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington and the former director of Monetary Affairs at the Fed’s Board of Governors. ‘They are trying to provide a safe port and show the Federal Reserve will always do what is right and has a long-run strategy.’

Fed officials closed four emergency lending programmes this month and are now considering the timing and use of several tools to remove or neutralise more than US$1 trillion in excess reserves from the banking system.

‘Most judged that a future programme of gradual asset sales could be helpful’ to shrink the balance sheet, while some officials were concerned about disrupting financial markets and the economy, the minutes said.

‘Several thought it important to begin a programme of asset sales in the near future,’ including spreading sales ‘over a number of years,’ according to the report.

Source: Business Times, 19 Feb 2010

HOMEBUYERS should rejoice as it looks like a home loan war is afoot.

DBS Bank has been lowering its home loan rates, forcing rivals to scramble to match its offerings in order to prevent the mortgage giant from gobbling their market share. The bank said that, last month alone, it enjoyed a more than 50 per cent increase in mortgage applications.

BT understands that HSBC, for one, is countering that with what some call ‘guerilla tactics’. Next week it will launch a special home loan package, but the offer may be valid only for a short time – to get customers to commit before the competition can react.

DBS has cut its rates several times in the last two months – a fact that has not gone unnoticed by analysts who say that DBS’s recent aggressive moves to sell loans under its new chief executive is a headache for other banks.

‘DBS has always been the market spoiler, dating back to the late 1990s,’ said Morgan Stanley analyst Matthew Wilson.

A recent Credit Suisse report noted that chief executive Piyush Gupta said the bank has the lowest cost of deposits, after all. ‘We have already seen the best home loan package coming from DBS recently,’ said Credit Suisse.

For the fourth quarter of 2009, DBS grew its housing loans 7 per cent, and 12 per cent over 2008.

DBS’s most aggressive package brings the spread it is charging borrowers back to pre-crisis levels and is less than half of what it was some 24 months ago.

For its 3-month Sibor (Singapore interbank offered rate ) plus package, it is charging a spread of 0.5 per cent and 0.75 per cent for the first and second years, respectively.

Citibank said that, as of Feb 10, it is charging a spread ranging from 0.8 to 1.25 per cent. It also offers the widest selection of Sibor tenors in the market, from one month to three years.

This means clients can take advantage of the low one-month Sibor now and then change to a 12-month Sibor later when they feel that interest rates are likely to rise, thereby fixing the rate on their instalments for that period.

Conversely, a client who has chosen a 6-month Sibor initially can switch to a one-month Sibor if he believes that interest rates could ease in the coming months, Citibank said.

DBS said its popular 3-year fixed-rate package charges from 1.99 to 2.19 per cent.

‘The fact is, DBS offers the widest suite and most competitive home loan packages in town,’ said Jeremy Soo, DBS managing director, consumer banking group, Singapore.

‘Our fixed-rate packages remain very popular, with more than 60 per cent of our customers opting for them,’ he said.

‘The response is not surprising as they were designed specifically to give homeowners both the certainty in repayments (over the three years) and still enjoy the flexibility to make partial repayments. This flexibility is usually not found in fixed-rate packages,’ he added.

‘Our momentum has been very good. Month-on-month, in January alone, we saw a more than 50 per cent increase in applications,’ Mr Soo said.

Asked about its coming promotion, an HSBC spokesman said the bank is very happy with the growth of its mortgage business for 2009 and the market share it achieved.

‘For 2010, we are continuing with this approach, which we are confident will help us to build on the momentum we achieved to attract and win more customers to our proposition. Watch this space.’

Vibha Coburn, Citibank Singapore business director for secured finance, said that while having competitive rates is important, ‘we strongly believe that providing innovative value-added products and good after-sales service is just as important’.

United Overseas Bank (UOB) said it will continue to be prominent in the home loan scene. ‘We will compete, but not on pricing alone,’ said Eddie Khoo, the bank’s head of personal financial services.

A UOB spokeswoman added that the bank reviews its product offerings on an ongoing basis to meet the changing needs of homebuyers.

‘As everyone’s situation is different, customers are encouraged to visit any UOB branch or speak to any UOB mobile banker for a package customised to their needs.’

Source: Business Times, 13 Feb 2010

Borrowers are still struggling with declining property values, analysts say

Sales of commercial mortgage- backed securities will likely remain below US$15 billion in 2010 as borrowers struggle with declining property values, according to analysts at Barclays Capital and JPMorgan Chase & Co.

Debt sales backed by skyscraper, hotel and shopping mall loans may be as low as US$10 billion this year, according to Alan Todd, a JPMorgan analyst in New York. Aaron Bryson, a Barclays Capital analyst also in New York, forecasts more transactions, reaching about US$15 billion during the period.

The US government has committed to reviving the US$700 billion commercial-mortgage backed bond market amid plunging property values and a lending pullback. A record US$237 billion of the debt was sold in 2007, compared with US$12 billion in 2008 and US$1.4 billion last year, according to data compiled by JPMorgan. New issuance is not likely to pick up until the second half of this year, Mr Todd said.

‘The banks would like to lend,’ Mr Todd said during an interview at the Commercial Mortgage Securities Association annual conference here. ‘There are fewer properties to lend against.’ Many owners went heavily into debt during the boom years and find it hard to locate properties not already encumbered to lend against, Mr Todd said.

The lack of new loans chokes off funding to borrowers with maturing debt. Two-thirds of loans bundled and sold as securities, amounting to US$410 billion, may require more cash as property values plummet and underwriting standards tighten, according to Deutsche Bank AG data.

US commercial real estate prices are 42.9 per cent below October 2007 peaks, Moody’s data show.

Debt sales dried up in 2008 as the credit crisis sapped demand and the high price investors sought to hold the obligations was too great for Wall Street banks to profitably underwrite and bundle new loans for sale.

The gap, or spread, on top-rated commercial-mortgage backed securities over Treasuries has fallen to about 3.49 percentage points, compared with 9.63 percentage points a year ago, according to Barclays data.

Source: Business Times, 21 Jan 2010

I REFER to last Monday’s report, ‘Moneylenders target HDB sellers’, which mentioned that ‘agents…introduce desperate sellers to moneylenders, and may get a fee for the referral, usually about $500 a customer’.

The Singapore Accredited Estate Agencies does not support the practice of estate agents obtaining referral fees from moneylenders for introducing their clients to them.

Estate agents should not introduce HDB sellers to moneylenders for a referral fee as this is not within the ambit of their job and the real estate brokerage service rendered. Estate agents who do so may also breach ethical obligations to their clients.

Instead, according to the HDB resale checklist for sellers, estate agents should, among other duties, help HDB sellers work out their estimated sales proceeds before selling, and upon resale, sellers have to discharge their outstanding mortgage loan and refund the Central Provident Fund monies used to buy the flat with interest to their CPF accounts.

Estate agents should also advise sellers to plan for their next home before they sell their flat, and should the sellers wish to buy another HDB flat, they will need to know if they are eligible for an HDB or bank loan.

Consumers are encouraged to report estate agents who may, for their personal benefit, use pressure tactics to induce them to take up loans with moneylenders.

Dr Tan Tee Khoon
Chief Executive Officer
Singapore Accredited Estate Agencies

Source, Straits Times 18 January 2010

MY RECENT experience to refinance my home loan was exasperating. Through a broker, I explored the best offers and settled on United Overseas Bank (UOB).

The UOB officer was young and eager and offered us a letter of offer (LO) in July last year, four months before the expiry of my existing loan’s lock-in period.

In mid-November, the bank said my loan would be released later that month. However, in late November, my lawyer told me the bank’s lawyers were unable to release the loan based on the LO because the loan structure was incorrect.

I had to come up with $140,000 in cash to continue, failing which UOB would have to apportion the full amount into housing loan and term loan, effectively changing the terms of the LO.

I agreed to amend the LO but was shocked and disappointed that the amended LO was at a higher rate in the third year and I had to bear the cost of the amendment.

I insisted that the rates, terms and conditions should be the same as the original LO. Reluctantly, the bank agreed to change the rates. However, after pursuing this issue at the next level, it still insisted on charging me $200 for the amendments.

I was then advised that the loan would be disbursed last month, but again it did not happen.

The experience has been frustrating and infuriating, and the intra-bank finger pointing over whose fault it was has not helped.

I am stumped and cannot decide whether to proceed.

The issue boils down to the bank having poor knowledge of its product. It failed to verify internally the terms of its LO to the extent that it cannot fulfil some of these terms. Rates and terms and conditions in the LO are changeable and so create unnecessary doubt and worry in the customer.

Worse, there seems to be neither regret nor apology to the customer for an oversight.

As a customer, the episode has made me feel small, vulnerable and undervalued.

Han Chao Juan

Source: Straits Times, 14 Jan 2010

LICENSED moneylenders are changing tack, targeting HDB sellers in need of immediate cash.

Rather than advertise the availability of personal loans to all and sundry, some specify that only those intending to sell their homes need apply.

The reason: HDB owners will have cash after the sale of their flats, so repayment is almost guaranteed.

Mr David Poh, president of the Moneylenders’ Association of Singapore, explained: ‘If they take a personal loan which is based on their income, they may lose their job at any time, so it’s not so secure for us.’

There were 187 licensed money lenders in Singapore as of July last year.

The moneylenders who spoke to The Straits Times said these HDB sellers are usually in need of quick cash, to pay credit card bills, medical bills, gambling debts, or renovation bills.

And even though they can liquidate their homes for cash, a sale can take up to five months.

Within this time, a seller will collect only up to $5,000 from the buyer, according to HDB rules, so some turn to money lenders referred through housing agents, or who advertise in the newspapers.

Some recent advertisements have been targeted at ‘HDB Sellers Only’, and promise cash of up to $100,000 at monthly interest rates that start from 1.5 per cent.

Usually, agents are also involved in the process. They introduce desperate sellers to money lenders, and may get a fee for the referral, usually about $500 a customer.

Mr Mohamad Ismail, chief executive of Propnex, said he is aware that this has been happening since late last year, and has warned agents in his company against the practice.

‘Agents should not bring sellers to licensed money lenders for a referral fee. This is not within the ambit of their job,’ he said.

But with HDB prices rising by 3.8 per cent in the last quarter and hitting new highs, moneylenders say they are more willing to lend large amounts of up to 80 per cent of the profits of the sale of each flat.

Mr James Lee, founder of James Lee Credit said his company now has about 25 HDB sellers asking for loans each month. This is about a fifth more than this time last year.

Moneylenders are willing to lend as sellers are likely to have ‘positive sales proceeds’ even after repaying their CPF, he added.

This does not always mean the loan will be repaid, however. Out of 10 loans, Mr Lee said one or two will not be honoured.

Moneylenders, however, have found ways to ensure that loans are repaid with interest of up to 10 per cent a month, depending on the borrower’s income, guarantor, and loan amount.

For high-risk cases, moneylenders will usually lodge a caveat on the HDB flat. The seller’s lawyer will then have to contact them about releasing the caveat so that the sale can continue.

Moneylenders can then lay claim to what they are owed, and make sure lawyers direct the money to them when the sale is completed.

Mr Lee said: ‘It’s a legal process that’s all in black and white.’

But lawyer Derrick Wong said this is possible only if there is no prior mortgagee or if the prior mortgagee does not object.

Ms Tan Huey Min, assistant director of Credit Counselling Singapore, a non-profit group that advises people on debt repayment, warned HDB sellers to do their sums before borrowing.

‘If there is a valid reason like an operation, then it may be okay,’ she said.

‘But if it’s not urgent, they should not do it because the interest rates are high, and there is a high chance they may be digging a bigger hole and get into bigger debt.’

Source: Straits Times, 11 Jan 2010

LICENSED moneylenders are changing tack, targeting HDB sellers in need of immediate cash.

Rather than advertise the availability of personal loans to all and sundry, some specify that only those intending to sell their homes need apply.

The reason: HDB owners will have cash after the sale of their flats, so repayment is almost guaranteed.

Mr David Poh, president of the Moneylenders’ Association of Singapore, explained: ‘If they take a personal loan which is based on their income, they may lose their job at any time, so it’s not so secure for us.’

There were 187 licensed money lenders in Singapore as of July last year.

The moneylenders who spoke to The Straits Times said these HDB sellers are usually in need of quick cash, to pay credit card bills, medical bills, gambling debts, or renovation bills.

And even though they can liquidate their homes for cash, a sale can take up to five months.

Within this time, a seller will collect only up to $5,000 from the buyer, according to HDB rules, so some turn to money lenders referred through housing agents, or who advertise in the newspapers.

Some recent advertisements have been targeted at ‘HDB Sellers Only’, and promise cash of up to $100,000 at monthly interest rates that start from 1.5 per cent.

Usually, agents are also involved in the process. They introduce desperate sellers to money lenders, and may get a fee for the referral, usually about $500 a customer.

Mr Mohamad Ismail, chief executive of Propnex, said he is aware that this has been happening since late last year, and has warned agents in his company against the practice.

‘Agents should not bring sellers to licensed money lenders for a referral fee. This is not within the ambit of their job,’ he said.

But with HDB prices rising by 3.8 per cent in the last quarter and hitting new highs, moneylenders say they are more willing to lend large amounts of up to 80 per cent of the profits of the sale of each flat.

Mr James Lee, founder of James Lee Credit said his company now has about 25 HDB sellers asking for loans each month. This is about a fifth more than this time last year.

Moneylenders are willing to lend as sellers are likely to have ‘positive sales proceeds’ even after repaying their CPF, he added.

This does not always mean the loan will be repaid, however. Out of 10 loans, Mr Lee said one or two will not be honoured.

Moneylenders, however, have found ways to ensure that loans are repaid with interest of up to 10 per cent a month, depending on the borrower’s income, guarantor, and loan amount.

For high-risk cases, moneylenders will usually lodge a caveat on the HDB flat. The seller’s lawyer will then have to contact them about releasing the caveat so that the sale can continue.

Moneylenders can then lay claim to what they are owed, and make sure lawyers direct the money to them when the sale is completed.

Mr Lee said: ‘It’s a legal process that’s all in black and white.’

But lawyer Derrick Wong said this is possible only if there is no prior mortgagee or if the prior mortgagee does not object.

Ms Tan Huey Min, assistant director of Credit Counselling Singapore, a non-profit group that advises people on debt repayment, warned HDB sellers to do their sums before borrowing.

‘If there is a valid reason like an operation, then it may be okay,’ she said.

‘But if it’s not urgent, they should not do it because the interest rates are high, and there is a high chance they may be digging a bigger hole and get into bigger debt.’

Source: Straits Times, 11 Jan 2010