MAS to tighten up on mortgage equity loans

[mr funny]

http://www.businesstimes.com.sg/sub/...21540,00.html?

Published January 15, 2011

MAS to tighten up on mortgage equity loans

Such loans to face the same loan-to-value limits as the latest property measures

By SIOW LI SEN


THE Monetary Authority of Singapore (MAS) has stepped in to close a loophole on mortgage equity financing (MEF), by imposing the same lower loan limits as the latest property measures.

It has proposed that mortgage equity financing - where banks offer loans based on the owner's equity in their homes - be subject to the same loan-to-value (LTV) limit of 80 per cent for those with only one home loan; 60 per cent if there is more than one home loan; and 50 per cent for non-individual borrowers.

By restricting the amount that can be borrowed through mortgage equity financing, MAS has cut off or severely narrowed one route for property buyers who need to raise more cash if they want to buy a second or third property.

Currently, there is no LTV rule on MEF though most banks lend 70-80 per cent of the value of the house.

MAS said the mortgage equity withdrawal loans (MWL) are subject to the financial institutions' (FI) credit assessment of the borrowers. 'Practices among FIs vary in the LTV limits that are applied . . . As a prudential measure, MAS plans to require FIs to comply with regulatory LTV limits on MWLs. The purpose of this policy is to apply the regulatory LTV limits, not just to loans used to purchase residential property, but to loans secured on residential property as well,' it said.

MAS also said that when assessing the LTV computation, FIs should aggregate loans taken from moneylenders, if any, which are used to pay for the property.

MEF would have become more prevalent given the sharp run-up in property prices and is popular with borrowers as banks charge a much lower interest rate compared with unsecured loans.

Last year, private home prices rose 17.6 per cent and have since eclipsed the previous 1996 peak.

The interest rate charged on MWLs if structured as an overdraft is typically the bank's prime rate plus 1 or 2 per cent, against double-digit rates for unsecured loans. The average prime rate here is 5.38 per cent.

Also, like overdrafts, borrowers pay interest only on the amount they use.

Banks said MEF is not a big business though many advertise it on their websites and some target customers whose home loans have been paid down.

A Maybank spokeswoman said: 'We have always adopted a prudent approach to MWLs and offer a lower quantum than for financing purchases of property.'

Dennis Khoo, Standard Chartered Bank Singapore's head of consumer banking, said the bank offers mortgage equity financing as part of its comprehensive suite of mortgage solutions.

'The same loan review and credit assessment process are applied across all mortgage loan applications, including looking at the customer's total credit facilities, monthly income and repayment habits,' he said. 'Responsible lending is our priority - the important thing for us is to work with our customers to ensure we strike a balance between the need for financing and the ability to service the loan.'

The deadline for written feedback on the above proposal is Feb 14.

[mr funny]

http://www.straitstimes.com/PrimeNew...ry_624301.html

Jan 15, 2011

property measures

MAS wants tighter rules for home loans

Borrowers' debts from other sources should be taken into account in assessment, it said

By Gabriel Chen


HOMEBUYERS may not get the same quantum of loans from banks to buy a home under new rules being proposed by the regulator.

The Monetary Authority of Singapore (MAS), in a consultation paper released on Thursday, wants financial institutions to add up a borrower's loans from sources like unsecured credit facilities and insurance policies before deciding on how much they can lend for a home.

MAS' aim is to remind banks to maintain prudent credit standards and to encourage financial prudence among borrowers.

Take a person with a $5,000 loan under Citibank's Ready Credit facility and a $5,000 insurance policy loan with insurer Great Eastern.

The MAS is proposing that these debts be taken into account by the bank when computing the homebuyer's loan-to-value (LTV) ratio and in assessing whether he complies with lending rules.

And in another 'prudential measure', the MAS is proposing that mortgage equity withdrawal loans (MWLs) - akin to a home equity line of credit - be subjected to various LTV limits.

These loans, which can be used for anything from refinancing a primary housing loan to buying shares, have been on the rise following the Goverment's August property cooling measures.

Bankers say that more borrowers have been using such loans to make downpayments for investment property.

The LTV limits vary across the industry although some 'liberal banks' are increasingly applying the 90 per cent LTV limits.

The MAS is now proposing that if a borrower has already paid off the mortgage on his home, he can buy another property with at least a 20 per cent deposit with a MWL.

But if he still has outstanding mortgage debt, he will have to put down at least 40 per cent deposit on a second home.

The MAS noted that the purpose of this policy is 'to apply the regulatory LTV limits, not just to loans used to purchase residential property, but to loans secured on residential property as well'.

'This is to be consistent with the need for financial institutions to maintain prudent credit standards and to encourage financial prudence among borrowers.'

If implemented, it can be 'seen to curb overleverage by consumers in the context that interest rates globally are unlikely to stay at depressed levels indefinitely', according to Mr Geoffrey Ying, who heads the mortgage division at financial advisory firm New Independent.

Ms Helen Neo, Maybank Singapore's head of consumer banking, reckons the proposals could reduce the likelihood of negative equity - when the loan exceeds the value of the home.

But some bankers say the proposal to factor in unsecured credit facilities and insurance policy loans could be hard to implement.

'Most banks already factor in an individual's unsecured credit facilities in the calculation of his total debt-servicing ratio, by tapping on Credit Bureau data,' said Standard Chartered's head of consumer banking for Singapore, Mr Dennis Khoo.

'But it's currently inferred because the data indicates the total amount of credit facilities the individual has with banks, and not the breakdown of how much facilities he has with each bank.'

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