NHB to start mortgage guarantee company by June

The National Housing Bank (NHB) will roll out its mortgage guarantee company by June this year. The firm is being set up to compensate banks and housing finance companies (HFCs) in case of defaults by home loan borrowers.

For technical assistance, NHB has roped in a US-based mortgage guarantee firm as its fourth partner. The other two partners are the Asian Development Bank (ADB) and International Finance Corporation (IFC), both having a 10 per cent stake in the company.

Declining to give out the name, NHB Chairman R V Verma said the international partner would provide the technical expertise required to run the proposed company. “They (the US-based company) are an experienced international player in mortgage guarantee business and also our strategic partner,” said Verma.

NHB will hold a large share in the company, followed by the US-based company. ADB and IFC would hold an equal share.

The proposed company will ensure and encourage standardisation of loan documents and processes. It would also provide banks with the guarantee to securities their loans more easily.

At 27.22 per cent, the non-performing assets (NPAs) for the housing segment grew sharply during 2009-10. As of september-end, they continued to register a significant increase on a year-on-year basis, the Reserve Bank of India (RBI) said in a recent report.

According to RBI, teaser home loan schemes by banks added to the demand pressures and housing prices. To discourage such schemes, it increased the provisioning requirements to two per cent for such advances last month — a five-fold increase. Subsequently, NHB also introduced provisioning for HFCs.

During the last 18 months, housing loans were the main driver of the bank’s retail credit growth. According RBI data, home and personal loans constitute 56 per cent of the banks’ retail portfolio, as on September, while home loans constitute 10 per cent of the advances portfolio.

The mortgage company will help banks lend to borrowers in the high risk category, without worrying about potential defaults.