Mortgage Financing Product Restructuring Case
Description: Mortgage Financing Product Restructuring Case Study March 25th 2013 1 By Muhammad Akbar Head Mortgage Financing Ashiana Housing Retail Finance Division The Bank of Punjab Training Session March 25th 2013 2 Mortgage Financing Importance
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slide1. Mortgage Financing Product Restructuring Case Study March 25th 2013 1 By
Muhammad Akbar
Head Mortgage Financing & Ashiana Housing
Retail Finance Division – The Bank of Punjab<br>
slide2. Training Session March 25th 2013 2 Mortgage
Financing
Importance
Potential 1 Focused Population Segment 2 Case Study
Low Cost Housing Brainstorming
NPL Case Study 4<br>
slide3. Why ? Mortgager Financing Significance for Country !<br>
slide4. 4 Higher Output of Country GDP = Private Consumption + Private Investment + Public Consumption + Public Investment + Exports – Imports
Private Consumption = 80% Consumption Demand Production Investment Improve
Social Sector<br>
slide5. Impact of House Financing 5 50 Linked Industries<br>
slide6. Mortgage Portfolio GDP Pakistan = Rs. 19,437 Billion
Housing portfolio (Pvt. Sector) = Rs. 53 Billion
FI Staff House Finance = Rs. 76 Billion
Total Housing Portfolio* = Rs.129 Billion
Mortgage = 0.66% of GDP
International Comparables 6 *as of June 2013<br>
slide7. Obama’s State of Union Address 2013 7<br>
slide8. Potential Housing Shortfall
World 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<br>
slide9. Impediments Legal Framework & Infrastructure
Title documents
Foreclosure
Legal Reforms: Securitization, credit contracts, stamp/registration duties etc.
Funding Sources
Channelization of long term funds
Mortgage Assets securitization
Refinancing institutions 9<br>
slide10. Industry Focus Mortgage 2nd Qtr-13 Disbursements Rs. 3.0 Billion
Avg. Loan Size Rs. 5.3 Million
Avg. Rate 13.7%
Avg. Period 11 Years
Avg. LTV ratio 44%
Monthly Installment Rs. 80,000
Monthly Income Rs.160,000
Property Value Rs. 12 Million
Pak. Avg. Income (Urban) Rs. 28,000 to Rs. 41,000
Per Capita Income (2012-13) Rs.12,000 pm
US $ 1,368 (Rs. 145,000 ) 10 SBP Quarterly Housing Report (Apr – June 13)
FBS-PERCENTAGE DISTRIBUTION OF MONTHLY HOUSEHOLD INCOME BY SOURCE AND QUINTILES, 2010-11<br>
slide11. Focused Population Banks/DFIs
Self sustainable
corp. entities Private sector
MI above Rs.0.10 M Micro Financing
Incremental Housing Models<br>
slide12. Case Study Ashiana Housing Scheme
Low Cost Housing
Financing Model 12<br>
slide13. Product Development Regulatory Compliance
Bank Credit Policy
Focused Target Market
Risk Mitigants
Internal Controls
SOPs – credit initiation, disbursement, operation, collection & recovery
Objective
Safe Return
Profitability 13<br>
slide14. Ashiana Housing - Documentary 14<br>
slide15. Public Housing Company 15 Housing Company Acquire State Owned Land
(At DC Rate) Award Infrastructure Contract Possession of House + Plot Beneficiaries Marketing + sales & Balloting 1 2 3 25% Down Payment 4 5 7 Award Construction Contract Consumer Mortgage Financing 30 Months – Possession Time Monthly Equity Installments<br>
slide16. Eligibility Allotment
Max. monthly Income: Rs. 30,000/-
Does not own house
No plot/house from any GOPb project 16 Financing
Debt Burden: 50%
No Default History
Age: 18 to 65 Years (life assured)
Positive Verification
Provide 02 PGs<br>
slide17. Selection Process Formal application
Balloting – Independent Pb. IT board
25% Down Payment
Verification
Provisional Allotment
Ownership title rest with PLDC, GOPb
till loan adjustment - 05 Years, whichever is later 17<br>
slide18. Verification Process Physical Visit by 04 Members
DCO / TMA
Akhuwat NGO
The Bank of Punjab
Civil society
Standard verification format
Residence, office, Income, repute 18<br>
slide19. Finance Terms Loan Amount 75% of FSV
Tenure upto 20 Years
Debt Burden 50%
Household Income clubbing allowed with PG
Additional security Mortgage by PLDC, GOPb
02 PGs – with no default history
PDCs 19<br>
slide20. Financial Model 20 Land
Proj. Announced House Mortgaged 25% Equity
210,000 Price – Rs.840,000/- Monthly Equity Installment
4500 X 30 = 135,000 GOPb Subsidy 162,500 Equity 507,500
Finance 333,000
LTV 40%
MI 4,100 Repayment Behavior Disbursement<br>
slide21. Recourse PLDC adjust within 30 days
Substitution Mechanism – with 30 days
Foreclosure
Community Management
Guarantors
PDCs 21<br>
slide22. Compliance 22<br>
slide23. Risk Mitigates – Internal Control Verification
Repayment Capacity
Repayment Behavior
Security Perfection
Standard property title documents
Standard financing documents
Foreclosure
Default Risk
Equity Building - Lower LTV ratio
No Markup Subsidy 23<br>
slide24. 24 Housing Company Acquire State Owned Land
(At DC Rate) Award Infrastructure Contract Possession of House + Plot Beneficiaries Marketing + sales & Balloting 1 2 3 25% Down Payment
Monthly Installment 4 5 6 7 Block wise Infrastructure development Award Construction Contract Block wise House Construction Developer Payments thr. Bank Construction monitoring agency Consumer Mortgage Financing Low Cost Subsidized Housing (Construction Cost) Commercial Sale Self Sustainable – No subsidy Model<br>
slide25. Brainstorming 25<br>
slide26. Employers Housing Colonies Model Employees Pension Funds Gratuity Monthly Contribution Monthly Contribution Develop Colonies Mortgage Financing At Source Deduction of Installments<br>
slide27. Add on Product 27<br>
slide28. Restructuring of Mortgage NPL – Case Study Case Status NPL - Loss
Age Above 65 Years
Facility Expired
Income source NIL - Retired
Life Insurance Not Renewed
Property Margin 40% - FSV
Outstanding Exposure (approx.)
Principal Rs. 4.0 Million
Markup Rs. 2.0 Million 28<br>
slide29. Family Profile
Spouse No Income, HW
Children 1S – 3D
Earning Hand 1S
Focus
Regularization – long run
10% Restructured amount OR 06 installments 29 Restructuring of Mortgage NPL – Case Study<br>
slide30. Property Transferred Son
Fresh facility co- borrower ship
Amortize Principal (DF-I)
Markup DF-II
Initial adjustment 10% of Rescheduled amount
Adjustment Markup account 30 Restructuring of Mortgage NPL – Case Study<br>
slide31. Thank you 31<br>
Muhammad Akbar
Head Mortgage Financing & Ashiana Housing
Retail Finance Division – The Bank of Punjab<br>
slide2. Training Session March 25th 2013 2 Mortgage
Financing
Importance
Potential 1 Focused Population Segment 2 Case Study
Low Cost Housing Brainstorming
NPL Case Study 4<br>
slide3. Why ? Mortgager Financing Significance for Country !<br>
slide4. 4 Higher Output of Country GDP = Private Consumption + Private Investment + Public Consumption + Public Investment + Exports – Imports
Private Consumption = 80% Consumption Demand Production Investment Improve
Social Sector<br>
slide5. Impact of House Financing 5 50 Linked Industries<br>
slide6. Mortgage Portfolio GDP Pakistan = Rs. 19,437 Billion
Housing portfolio (Pvt. Sector) = Rs. 53 Billion
FI Staff House Finance = Rs. 76 Billion
Total Housing Portfolio* = Rs.129 Billion
Mortgage = 0.66% of GDP
International Comparables 6 *as of June 2013<br>
slide7. Obama’s State of Union Address 2013 7<br>
slide8. Potential Housing Shortfall
World 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<br>
slide9. Impediments Legal Framework & Infrastructure
Title documents
Foreclosure
Legal Reforms: Securitization, credit contracts, stamp/registration duties etc.
Funding Sources
Channelization of long term funds
Mortgage Assets securitization
Refinancing institutions 9<br>
slide10. Industry Focus Mortgage 2nd Qtr-13 Disbursements Rs. 3.0 Billion
Avg. Loan Size Rs. 5.3 Million
Avg. Rate 13.7%
Avg. Period 11 Years
Avg. LTV ratio 44%
Monthly Installment Rs. 80,000
Monthly Income Rs.160,000
Property Value Rs. 12 Million
Pak. Avg. Income (Urban) Rs. 28,000 to Rs. 41,000
Per Capita Income (2012-13) Rs.12,000 pm
US $ 1,368 (Rs. 145,000 ) 10 SBP Quarterly Housing Report (Apr – June 13)
FBS-PERCENTAGE DISTRIBUTION OF MONTHLY HOUSEHOLD INCOME BY SOURCE AND QUINTILES, 2010-11<br>
slide11. Focused Population Banks/DFIs
Self sustainable
corp. entities Private sector
MI above Rs.0.10 M Micro Financing
Incremental Housing Models<br>
slide12. Case Study Ashiana Housing Scheme
Low Cost Housing
Financing Model 12<br>
slide13. Product Development Regulatory Compliance
Bank Credit Policy
Focused Target Market
Risk Mitigants
Internal Controls
SOPs – credit initiation, disbursement, operation, collection & recovery
Objective
Safe Return
Profitability 13<br>
slide14. Ashiana Housing - Documentary 14<br>
slide15. Public Housing Company 15 Housing Company Acquire State Owned Land
(At DC Rate) Award Infrastructure Contract Possession of House + Plot Beneficiaries Marketing + sales & Balloting 1 2 3 25% Down Payment 4 5 7 Award Construction Contract Consumer Mortgage Financing 30 Months – Possession Time Monthly Equity Installments<br>
slide16. Eligibility Allotment
Max. monthly Income: Rs. 30,000/-
Does not own house
No plot/house from any GOPb project 16 Financing
Debt Burden: 50%
No Default History
Age: 18 to 65 Years (life assured)
Positive Verification
Provide 02 PGs<br>
slide17. Selection Process Formal application
Balloting – Independent Pb. IT board
25% Down Payment
Verification
Provisional Allotment
Ownership title rest with PLDC, GOPb
till loan adjustment - 05 Years, whichever is later 17<br>
slide18. Verification Process Physical Visit by 04 Members
DCO / TMA
Akhuwat NGO
The Bank of Punjab
Civil society
Standard verification format
Residence, office, Income, repute 18<br>
slide19. Finance Terms Loan Amount 75% of FSV
Tenure upto 20 Years
Debt Burden 50%
Household Income clubbing allowed with PG
Additional security Mortgage by PLDC, GOPb
02 PGs – with no default history
PDCs 19<br>
slide20. Financial Model 20 Land
Proj. Announced House Mortgaged 25% Equity
210,000 Price – Rs.840,000/- Monthly Equity Installment
4500 X 30 = 135,000 GOPb Subsidy 162,500 Equity 507,500
Finance 333,000
LTV 40%
MI 4,100 Repayment Behavior Disbursement<br>
slide21. Recourse PLDC adjust within 30 days
Substitution Mechanism – with 30 days
Foreclosure
Community Management
Guarantors
PDCs 21<br>
slide22. Compliance 22<br>
slide23. Risk Mitigates – Internal Control Verification
Repayment Capacity
Repayment Behavior
Security Perfection
Standard property title documents
Standard financing documents
Foreclosure
Default Risk
Equity Building - Lower LTV ratio
No Markup Subsidy 23<br>
slide24. 24 Housing Company Acquire State Owned Land
(At DC Rate) Award Infrastructure Contract Possession of House + Plot Beneficiaries Marketing + sales & Balloting 1 2 3 25% Down Payment
Monthly Installment 4 5 6 7 Block wise Infrastructure development Award Construction Contract Block wise House Construction Developer Payments thr. Bank Construction monitoring agency Consumer Mortgage Financing Low Cost Subsidized Housing (Construction Cost) Commercial Sale Self Sustainable – No subsidy Model<br>
slide25. Brainstorming 25<br>
slide26. Employers Housing Colonies Model Employees Pension Funds Gratuity Monthly Contribution Monthly Contribution Develop Colonies Mortgage Financing At Source Deduction of Installments<br>
slide27. Add on Product 27<br>
slide28. Restructuring of Mortgage NPL – Case Study Case Status NPL - Loss
Age Above 65 Years
Facility Expired
Income source NIL - Retired
Life Insurance Not Renewed
Property Margin 40% - FSV
Outstanding Exposure (approx.)
Principal Rs. 4.0 Million
Markup Rs. 2.0 Million 28<br>
slide29. Family Profile
Spouse No Income, HW
Children 1S – 3D
Earning Hand 1S
Focus
Regularization – long run
10% Restructured amount OR 06 installments 29 Restructuring of Mortgage NPL – Case Study<br>
slide30. Property Transferred Son
Fresh facility co- borrower ship
Amortize Principal (DF-I)
Markup DF-II
Initial adjustment 10% of Rescheduled amount
Adjustment Markup account 30 Restructuring of Mortgage NPL – Case Study<br>
slide31. Thank you 31<br>