Case Study March 25th 2013 1 By Muhammad Akbar Head Mortgage Financing amp Ashiana Housing Retail Finance Division The Bank of Punjab Training Session March 25th 2013 2 Mortgage ID: 1029918
Download Presentation The PPT/PDF document "Mortgage Financing Product Restructuring" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
1. Mortgage FinancingProduct Restructuring Case StudyMarch 25th 20131ByMuhammad AkbarHead Mortgage Financing & Ashiana HousingRetail Finance Division – The Bank of Punjab
2. Training SessionMarch 25th 20132MortgageFinancingImportancePotential1Focused Population Segment2Case StudyLow Cost Housing3 BrainstormingNPL Case Study4
3. Why?Mortgager FinancingSignificance for Country !
4. 4Higher Output of CountryGDP = Private Consumption + Private Investment + Public Consumption + Public Investment + Exports – ImportsPrivate Consumption = 80%ConsumptionDemandProductionInvestmentImproveSocial Sector
5. Impact of House Financing550Linked Industries
6. Mortgage PortfolioGDP Pakistan = Rs. 19,437 BillionHousing portfolio (Pvt. Sector) = Rs. 53 BillionFI Staff House Finance = Rs. 76 BillionTotal Housing Portfolio* = Rs.129 BillionMortgage = 0.66% of GDPInternational Comparables6*as of June 2013
7. Obama’s State of Union Address 20137
8. PotentialHousing ShortfallWorld Bank Estimation 8 million housing units (2009)Annual incremental demand 600,000 units.Annual housing needs 1.1 million Units(600,000 incremental demand and 500,000 units from the backlog) Total Funding requirement Rs. 3.3 trillion per year (average price of Rs. 3 million per unit)Funding Demand Rs.330 billion(Assuming only 10% housing needs as effective demand)Mortgage Financing Requirement Rs. 231 billion per annum(At 70% LTV)8
9. Impediments Legal Framework & InfrastructureTitle documents Foreclosure Legal Reforms: Securitization, credit contracts, stamp/registration duties etc.Funding Sources Channelization of long term fundsMortgage Assets securitizationRefinancing institutions9
10. Industry FocusMortgage 2nd Qtr-13 Disbursements Rs. 3.0 BillionAvg. Loan Size Rs. 5.3 MillionAvg. Rate 13.7%Avg. Period 11 YearsAvg. LTV ratio 44%Monthly Installment Rs. 80,000Monthly Income Rs.160,000Property Value Rs. 12 MillionPak. Avg. Income (Urban) Rs. 28,000 to Rs. 41,000Per Capita Income (2012-13) Rs.12,000 pm US $ 1,368 (Rs. 145,000 )10SBP Quarterly Housing Report (Apr – June 13)FBS-PERCENTAGE DISTRIBUTION OF MONTHLY HOUSEHOLD INCOME BY SOURCE AND QUINTILES, 2010-11
11. Focused PopulationBanks/DFIsSelf sustainablecorp. entitiesPrivate sectorMI above Rs.0.10 MMicro FinancingIncremental Housing Models
12. Case StudyAshiana Housing SchemeLow Cost Housing Financing Model12
13. Product DevelopmentRegulatory ComplianceBank Credit PolicyFocused Target Market Risk Mitigants Internal Controls SOPs – credit initiation, disbursement, operation, collection & recoveryObjective Safe Return Profitability13
14. Ashiana Housing - Documentary14
15. Public Housing Company15Housing CompanyAcquire State Owned Land(At DC Rate)Award Infrastructure ContractPossession of House + PlotBeneficiariesMarketing + sales & Balloting12325% Down Payment 457Award Construction ContractConsumer Mortgage Financing30 Months – Possession TimeMonthly Equity Installments
16. EligibilityAllotmentMax. monthly Income: Rs. 30,000/-Does not own houseNo plot/house from any GOPb project16FinancingDebt Burden: 50%No Default HistoryAge: 18 to 65 Years (life assured)Positive VerificationProvide 02 PGs
17. Selection ProcessFormal applicationBalloting – Independent Pb. IT board25% Down PaymentVerificationProvisional Allotment Ownership title rest with PLDC, GOPb till loan adjustment - 05 Years, whichever is later17
18. Verification ProcessPhysical Visit by 04 MembersDCO / TMAAkhuwat NGOThe Bank of PunjabCivil societyStandard verification formatResidence, office, Income, repute18
19. Finance TermsLoan Amount 75% of FSVTenure upto 20 YearsDebt Burden 50%Household Income clubbing allowed with PGAdditional security Mortgage by PLDC, GOPb 02 PGs – with no default history PDCs19
20. Financial Model20LandProj. AnnouncedHouse Mortgaged25% Equity210,000Price – Rs.840,000/-Monthly Equity Installment4500 X 30 = 135,000Construction Period = 30 MonthsGOPb Subsidy 162,500Equity 507,500Finance 333,000LTV 40%MI 4,100Repayment BehaviorDisbursement
21. RecoursePLDC adjust within 30 daysSubstitution Mechanism – with 30 daysForeclosureCommunity ManagementGuarantorsPDCs21
22. Compliance22SBP Prudential RequirementsBOP PolicyDebt Burden: Monthly Instalment should not exceed 50% of disposable Income (R-3 & R-15)Maximum Loan limit shall be subject to compliance of debt burden policyIncome Estimation report from practicing chartered accountant will be arranged for informal segment of target market.Security: Mortgage of House (R-18)House to be mortgaged by PLDCDebt: Equity Ratio– 85:15 (R-16)75:25Tenure: Max. to be defined by the bank (R-17) Max. 20 YearsEvaluation of Property / House (R-19)Arranged through PBA approved surveyorsFloating Rate Housing Product (R-21)Rate is based on 01 Year KIBOR to reset annuallyAssess the genuineness & integrity of the title documents of House (R-19)Legal opinion on title Documents is mandatory
23. Risk Mitigates – Internal ControlVerificationRepayment CapacityRepayment BehaviorSecurity PerfectionStandard property title documentsStandard financing documentsForeclosureDefault RiskEquity Building - Lower LTV ratioNo Markup Subsidy23
24. 24Housing CompanyAcquire State Owned Land(At DC Rate)Award Infrastructure ContractPossession of House + PlotBeneficiariesMarketing + sales & Balloting12325% Down Payment Monthly Installment4567Block wise Infrastructure developmentAward Construction ContractBlock wise House ConstructionDeveloper Payments thr. BankConstruction monitoring agencyConsumer Mortgage FinancingLow Cost Subsidized Housing (Construction Cost)Commercial SaleSelf Sustainable – No subsidy Model
25. Brainstorming25
26. Employers Housing Colonies ModelEmployeesPension FundsGratuityMonthly ContributionMonthly ContributionDevelop ColoniesFunding SourceMortgage FinancingAt Source Deduction of Installments
27. Add on Product27
28. Restructuring of Mortgage NPL – Case StudyCase Status NPL - LossAge Above 65 YearsFacility ExpiredIncome source NIL - RetiredLife Insurance Not RenewedProperty Margin 40% - FSVOutstanding Exposure (approx.)Principal Rs. 4.0 MillionMarkup Rs. 2.0 Million28
29. Family ProfileSpouse No Income, HWChildren 1S – 3DEarning Hand 1SFocusRegularization – long run10% Restructured amount OR 06 installments29Restructuring of Mortgage NPL – Case Study
30. Property Transferred SonFresh facility co- borrower shipAmortize Principal (DF-I)Markup DF-IIInitial adjustment 10% of Rescheduled amountAdjustment Markup account30Restructuring of Mortgage NPL – Case Study
31. Thank you31