Home loans may soon come at better terms, with the concept of mortgage guarantee set to take off in the coming weeks. Mortgage guarantees will ensure softening of interest rates as well as more credit availability for retail home loan borrowers, Mr R. V. Verma, National Housing Bank Chairman, has said.
With this product, lenders will get new customers who have not been part of the financial system. Existing customers will also benefit through better terms, he said.
Mr Verma said that India's first mortgage guarantee company will soon go operational. All the shareholder, technical services and subscription agreements have been executed among the four joint venture partners as of February 3. The four-way joint venture will be named India Mortgage Guarantee Company.
Technical partner
While NHB will take a 38 per cent stake in the company, and be the largest shareholder, US-based Genworth Financial will be the technical partner with 36 per cent stake. The Asian Development Bank and International Finance Corporation have approved and taken 13 per cent each in the company.
With mortgage guarantee, which is basically a risk-mitigant, a home loan borrower may be able to reduce his equity for taking a loan. This is because the guarantee will provide the lender the freedom to lend more under the permitted loan-to-value norms. A mortgage guarantee company provides credit guarantee to housing finance companies and banks on behalf of home loan borrowers. The guarantees are invoked in case of default by home loan borrowers.
Mr Verma said that the guarantee fee is the main revenue stream for a mortgage guarantee company. The guarantee fee could be either fully borne by the borrower or shared between the borrower and the lender.
North Carolina-based Genworth Financial is expected to soon approach the Foreign Investment Promotion Board for approval of the proposed foreign investment. The initial paid-up capital of the joint venture will be Rs 120 crore.
The RBI had few years ago come out with separate regulations for mortgage guarantee.