NEWS & ADVICE : HOME LOANS
Issues with reverse mortgage worry banks
By Joseph Samson
Jan 14, 2008
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New Delhi: The newly launched reverse mortgage scheme has certain issues that has left the bankers worried. They have asked the Reserve Bank of India to clarify the risk weights that reverse mortgage loans should carry. In present scenario the reverse mortgage has the same risk weight that is applied to the real estate segment. This value is currently calculated at 150 percent of the value of loan. However, bankers feel that there is a greater risk weight involved in reverse mortgage and banks propose to seek clarity from the Reserve Bank of India (RBI) on the risk weights that should apply for reverse mortgage loans.

Reverse mortgage is a loan scheme in which senior citizens can use their property as a source of income. A senior citizen who owns a house can obtain a reverse mortgage and the bank to which he pledges his property either pays him a lump sum amount or a regular income. The money provided by banks as regular income to the owner carries an interest rate, which is around 10-11 percent. After the death of the property owner, the heirs of the property can repay the loan and claim the property or the bank can sell the property to recover its dues and pay the balance to the legal heirs of the property owner.

Bankers also have their concerns on legal hassles involved in repossession of the property in case the owner of the property passes away. The Finance Minister Mr. P Chidambaram in his 2007-08 Budget, had stated that NHB will introduce a reverse mortgage scheme for senior citizens. Reverse mortgage segment in India has witnessed the entry of many players, both from the private and public sector. Besides Deewan Housing Finance Limited (DHFL) banks like the Punjab National Bank (PNB), State Bank of India (SBI), Bank of Baroda(BoB), Allahabad Bank, Indian Bank and Axis Bank are offering reverse mortgage products.


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