With many people’s finances still in doldrums, banks are wary of giving fresh loans. In such a scenario, mortgage guarantee backed home loans help as borrowers can get loans for higher tenure beyond the retirement age. India Mortgage Guarantee Corporation (IMGC) is India’s only such mortgage guarantee firm, having tied up with atleast 15 lenders, and covers loans of around Rs 9,000 crore across more than 50,000 customers. Sovan Mandal, Chief Business Officer, India Mortgage Guarantee Corporation (IMGC), speaks to Hiral Thanawala of Moneycontrol in this interview. Excerpts:
What percentage of your customers has opted for loan moratorium?
When the moratorium scheme was first announced, more than 40 per cent of our borrowers (those who took loans from our bank partners) had opted for the moratorium. There were mainly two reasons: they either faced a cash crunch or they did not understand moratorium properly. Over the past few months, people have got back to normalcy and have started paying their EMIs. As per the latest data available, 26 per cent of our customers are in the moratorium phase.
Most of the lenders are expecting borrowers who opted for home loan moratoriums to become delinquent once the moratorium ends. How would your role kick in if EMI defaults happen?
Guarantee programs such as ours will support the financial eco-system by protecting lenders against credit losses which could spike significantly during such downturns.
We have done our analysis. We expect defaults on repayments to go up under these stressed situations. But we are in a position to support with cash flows to the lenders.
It also gives us an opportunity to establish the value of a guarantee product, as the usual perception has been that default is usually insignificant in home loans. Most of the lenders have not really understood the long cycle risk of the home loan business and how guarantee products protect them against such risk. The pandemic has changed this perception.
Why is mortgage guarantee needed in these pandemic times while applying for a home loan? Will having a ‘mortgage guarantee’ revive home loans demand after COVID-19 ends?
Most of the lenders are wary of lending in the current economic uncertainty. Some of the lenders are tightening their policy norms.
We are working with our lender partners to mitigate the risk with mortgage guarantee, so most are now looking at leveraging the mortgage guarantee instead of tightening their lending policies.
If the government or the regulator allows certain benefits to accrue to lenders on account of mortgage guarantee, such as lower provisioning, and capital requirement, or allows higher loan-to-value (LTV) lending – up to 90 per cent with mortgage guarantee, similar to other developed markets – it would help to revive the demand for home loans.
What portion of a typical housing loan does IMGC guarantee? Do you assess borrowers before agreeing to guarantee their loans?
Regulations allow us to guarantee up to 100 per cent of the loan amount. But, higher the coverage, the greater is the capital requirement for us and thus the cost also goes up. So, most lenders agree to get a guarantee of 20 per cent cover. This is adequate to cover losses. Borrowers are willing to pay the fees for mortgage guarantee.
No additional parameters are assessed other than those required to judge the eligibility for home loans. But the cost of guarantee is added to the EMI that the borrower pays.
When can a bank invoke a mortgage guarantee?
Generally, a mortgage guarantee gets invoked when the borrower turns into a non-performing assets (NPA) as per the RBI regulations. A home loan is defined as an NPA when the account is 90 days past due. The reasons could be the demise of the borrower, job loss, medical emergency in the family, willful default, and so on. That is when our cover kicks in and we pay the guarantee amount to the lender.
What is the cost added to the EMI after opting for a mortgage guarantee scheme?
The one-time fee varies from 1 per cent to 1.8 per cent (of the entire home loan amount) depending on various parameters – credit profile of the borrower, loan-to-value ratio, etc. On an average, the EMI, for a customer, goes up by Rs 15 for every Rs 1 lakh home loan, on account of mortgage guarantee fee. So, for a Rs 20 lakh home loan, the mortgage guarantee fee will be Rs 300 every month.
Not many borrowers are aware of mortgage guarantee schemes and their benefits. How you are planning to educate them?
Unfortunately, we do not have any competition and we are the only organisation working on creating the whole segment. As more and more lenders integrate mortgage guarantee in their offering, the market will slowly adopt it as a new standard and more borrowers will be aware. Also, any regulatory changes will support in increasing the awareness amongst borrowers.