Fixed rate home loans are history, by Sarbajeet K Sen

The fight may be intense among the top housing finance lenders to woo customers with special offers and teaser rates even as festive season is round the corner. But, if you are someone looking for a home loan that bears a fixed rate of interest for its entire tenure, you may not be as welcome.

While the State Bank of India and LIC Housing Finance do not offer products with interest rate remaining fixed for its entire tenure, HDFC and ICICI Bank are pricing their offering at a level that would discourage consumers to opt for it, prompting housing finance experts to say the offers are virtually not on the shelf.

While HDFC’s fixed rate loan comes at 14 per cent rate of interest, against its teaser rate home loan offering that starts at 8.5 per cent up to March 31, 2011, ICICI Bank has priced its offering a shade higher at 14.5 per cent, while its teaser rate begins at 8.25 per cent for the first year.

“The rate that the lenders are offering on their fixed rate product for the entire tenure essentially means that there is no such product available. The pricing appears to be aimed at discouraging borrowers to opt for the offer,” RV Verma, executive director of National Housing Bank, said.

Out of the total home loan providers including all banks and housing finance companies, the four largest players — HDFC, SBI, ICICI Bank and LIC Housing Finance, between them accounted for nearly 53 per cent of the market at the end of 2009, according to Icra report on the mortgage loan market in the country.

According to data available on the NHB website for interest rates on housing finance as on September 1, Axis Bank and DFHL Vysya Housing Finance have similar high rates of 14 per cent and 13.75 per cent, respectively on their fixed rate products, while the likes of Punjab National Bank and IDBI Bank have comparatively lower rates. IDBI Bank’s offer comes at 11 per cent, PNB has the lowest rate of 10.50 per cent among the 15 primary lenders.

The remaining eight lenders in the list do not have such fixed rate offers.

A senior official of SBI felt that the fact that providers are actively discouraging fixed rate products is a sign of the market coming of age. “It is a sign of the market maturing. When most housing loan providers were offering fixed rates for the entire tenure some years ago, many of them were new to the whole concept of retail banking and did not know of its intricacies. The competition for drawing in fresh borrowers was making them offer such products,” the official said.

So, what is it that is forcing the major lenders to discourage borrowers from taking a fixed offer or deciding to not offer such a product at all? Lenders say that the sole reason is their inability to raise long-term funds to match such lending.

“Cost of funds keeps varying over the longer term. Hence, it is rather risky to take a long-term call on the lending rate and deciding to keep it fixed for the entire tenure,” the SBI official said.

Srinivas Acharya, managing director of Sundaram BNP Paribas Home Finance, said inability to raise long-term funds makes designing of long-term fixed rate products difficult. “We don’t offer a fixed interest rate product over the entire tenure because it is risky proposition. It is difficult to pattern fixed rate products over a 20-year period, since there is no matching funding available in the market,” he said.

Verma says besides the difficulty of raising long-term funds, such funds often come at a higher cost, if available. “It is difficult for lenders to take a call because of uncertainties. Long-term fund raising has become difficult or comes at a price that is not attractive,” Verma said.

ICICI Bank and HDFC did not want to comment on the issue. “Yes we do offer fixed interest for the entire tenure of the home loan,” was all that an ICICI Bank spokesperson said, without willing to discuss the subject when probed further.


Reverse Mortgage Applications Rise to Highest Level Since September 2009,

The number of reverse mortgage applications increased 8.1% to 9,686 in August according to the latest report from the Federal Housing Administration.

While down 12.4% from the same period last year, the application totals for August are the highest since September 2009.
The run up in applications before the end of FHA’s fiscal year is normal and is likely to increase as reverse mortgage borrowers rush to complete the process before the Department of Housing and Urban Development lowers the principal limit factors in October.

The total amount of FHA applications for the month was 200,907 with a significant rise in prior FHA refinance cases. This included 86,569 purchase transactions, 104,652 refinance cases and 9,686 reverse mortgage cases. Included in the refinance count were 55,103 prior FHA’s (46.9% over last month), and 49,549 conventional conversions. In addition, 39 H4H cases were included in the refinance total.

There were also 6,645 HECM’s insured in August and 6,175 were the traditional reverse mortgage type.

As of the end of August, FHA has 558,316 mortgages in a serious delinquency category, yielding a seriously default rate of 8.5 percent. This includes all mortgages in bankruptcy, in foreclosure and 90 days or more delinquencies.

So far this fiscal year 270,964 claims have been paid. The bulk of these were for loss mitigation retention (164,744) and property conveyance (87,807). Updated Notice of Default Lists and Books for the Week of September 17th, 2010 was updated today with the largest list of Notice Defaults to date. With Notice of Default records dating back nearly 2 years. idocuments the fall of the great real estate bust of the 21st century.

All listings are in PDF and Excel Spread Sheet format.

Multnomah County Foreclosures

Ally’s GMAC Mortgage Halts Home Foreclosures in 23 States,

Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.

GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Oleckiconfirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.

The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.

GMAC Mortgage ranked fourth among U.S. home-loan originators in the first six months of this year, with $26 billion of mortgages, according to industry newsletter Inside Mortgage Finance. Wells Fargo & Co. ranked first, with $160 billion, and Citigroup Inc. was fifth, with $25 billion.

GMAC was created in 1919 to provide financing for buyers of General Motors Co.’s vehicles. GMAC converted into a bank holding company in 2008 as it received more than $17 billion of government funds during the financial crisis. It rebranded itself Ally Financial last year, and continues to offer auto loans and mortgages.

Following is a table of the affected states.

New Jersey
New Mexico
New York
North Carolina
North Dakota
South Carolina
South Dakota

To contact the reporter on this story: Denise Pellegrini in New York