PROJECT REPORT ON HOUSING LOAN

IN PARTIAL FULFILLMENT OF THE DEGREE AWARDED AT

M.COM PART I (GROUP)

SEMESTER I

Commercial Banking
SUBMITTED TO

UNIVERSITY OF MUMBAI FOR ACADMIC YEAR 2012-2013

SUBMITTED BY, NAME: PRAKASH RANJAN ROLL NO: 30

VIVA COLLEGE OF ARTS COMMERCE AND SCIENCE VIRAR (WEST) 401303.

DECLARATION

I hereby declare that the project titled HOUSING LOAN is an original work prepared by me and is being submitted to University of Mumbai in partial fulfillment ofM.COM-I (GROUP)degree for the academic year 2012-2013.

To the best of my knowledge this report has been submitted to the University of Mumbai or any other affiliated college for the fulfilment of M.COM-I (GROUP)degree.

Date: Place:

Name: PRAKASH RANJAN Signature:

ACKNOWLEDGMENT

I Prakash ranjan the student of VIVA College pursuing my M.COM-I (GROUP), would like to pay the credits, for all those who helped in the making of this project. The first in accomplishment of this project is our Principal Dr.R.D Bhagat,Vice Principle Prajakta Paranjape, Course co-ordinater Prof. Nilima Bhagwat and Prof. Rakhee Oza & teaching staff of VIVA College.

I would also like to thank all my college friend those who influenced my project in order to achive the desired result correctly.

INDEX

1. Introduction 2. Objective 3. Requirement 4. Sectrol Overview 5. Function 6. Case study 7. Conclusion 8. Bibliography

INTRODUCTION
Housing is one of the fundamental demands for living. Access to acceptable housing is one of the elementary human needs as well as one of the keys to peace and happiness. Inevery country, resolving housing issues has political, social and economic significance. To solve housing issues, every country has formulated its own specific housing development program and developed its unique program operating mechanisms. Many countries have especially drawn up the development program of public housing to assist low and middle-income groups solve their particular housing-related issues. During the last one decade, Asia Pacific economies have made significant progress in developing private housing market and market based systems for financing home purchases. Government sponsored housing finance strategies have become more and more non-viable due to budget constraints. Post 1997, Asian financial crisis, the respective Governments in Asia stepped up their effort to improve the structure of the housing finance system. Many countries even in other parts of the globe have experienced the waves of financial liberalization and deregulation. House prices have increased in most industrialised and emerging economics and in many countries housing debt per capita and house prices have reached new all-time highs (BIS, 2006).The key factors triggering the progressive growth on the demand side are declining interest rates over a period of years, rapid increasing in income levels, tax benefits extended to borrowers whereas from the supply side the emerging competition in the housing finance sector between lenders, an increasing number of new entrants to the housing finance market, the introduction of several new products by lending institutions to meet the needs of a wide variety of customers and increasing collaboration between lending institutions and housing developers. Introduction of home loans at floating rates become popular among borrowers in Asian countries especially in India, China and Sri-lanka as the perception among the borrowers is that they could enjoy lower short-term rate which is comparatively less than long-term fixed rate (Piayasiri, 2006).

Global Trends in Housing and Housing Finance Markets Housing is an integral measure of a countrys development, and the way a society housesits people is an important determinant of its development and progress (Parekh, D, 2006).Housing has traditionally been one of the most important assets for households in Asia(Haibin Zhu, 2006). The cities of Indus Valley Civilisation, Harappa and Mohenjodaraoare the exemplary examples for the same. Now, let us have a look at the evolution andtrends in housing and housing finance markets in selected countries

Loans for Housing

Realising the necessity to provide houses and improve housingfacilities in the country, the nationalised banks have been asked to provide funds for housing since 1979. Initially, they were expected tolend Rs. 150 crores annually, but the target was raised to Rs. 300 croresfor the year 1989-90. For the year 1990-91, individual nationalised bankshousing finance allocation was required to be computed at 1.5% of theincremental deposits on March 1990, over the corresponding figure of March 1989.According to the guidelines issued by the Reserve Bank, a banksassistance to the housing sector (including rural areas) may be as follows: 1. 30% of the total housing finance allocation by way of directassistance to individuals or a group of borrowers etc., out of whichat least half should be given as direct housing loans in rural andsemiurban areas. 2. 30%of the allocation for landing to HUDCO, HousingDevelopment Boards, HDFC and other housing agencies for construction of house.c)The remaining 40% of the assistance may be by way of subscription to the guaranteed bonds/ debentures of HUDCO, and National Housing Bank.The terms and conditions etc., for housing finance have beenliberalized to encourage the flow of credit for housing as follows: 3. The loan can be used for purchase of a house or flat, constructionof a house or tenement or for additions or extensions to an existingstructure. b.The loan will be secured by mortgage of the property. Banks alsoaccept security of adequate value in the form of life insurance policies. Government promissory notes, shares and debentures or gold ornaments.

4. Terms loans from banks to housing finance companies(other thanHUDCO,HDFC and companies promoted by commercial banks)has been raised to three times there net own funds in January,1990.d.The repayment period will be spread over fifteen years. 5. e. The maximum amount of loan was earlier fixed at Rs 3 Lacks per individuals. But this ceiling was withdrawn, effective 11 October,1989.

OBJECTIVES

To provide long term finance for construction of houses for residential purposes or finance or undertake housing and urban development programmes in the country.

To finance or undertake, wholly or partly, the setting up of new or satellite town. To subscribe to the debentures and bonds to be issued by the State Housing (and or Urban Development) Boards, Improvement Trusts, Development Authorities etc., specifically for the purpose of financing housing and urban development programmes.

To finance or undertake the setting up of industrial enterprises of building material. To administer the moneys received, from time to time, from the Government of India and other sources as grants or otherwise for the purposes of financing or undertaking housing and urban development programmes in the country.

To promote, establish, assist, collaborate and provide consultancy services for the projects of designing and planning of works relating to Housing and Urban Development programmes in India and abroad.

NEED FOR HOUSING LOAN

Housing is one of the basic needs of mankind in terms of safety, security, self-esteem, social status, cultural identity, satisfaction and achievement. It is fundamental requirement both for human existence and settlement. Housing contributes effectively in fixed capital formation as well as creation of productive employment. It plays an important role in countrys economy, typically accounting for around 10 to 20 per cent of total economic activity. It has been estimated that there are around 600 other industries that have links to the housing markets. A stimulus to the demand for housing will have a direct or indirect stimulatory impact on all of these industries.

For every rupee invested in India, INR 0.78 is added to the gross domestic product. Since independence, growth in the Indian population has aggravated the problem of housing for Indian citizens. According to the population census of 2001, out of the total population 1027 million about 742 million live in rural areas and 285 million live in urban areas. Urban population is accounted as 27.8% to the total population whereas it was 25.7% under 1991 census. So there is rise of 2.1% in the urbanization of Indian population. This has also brought along with it disproportionately higher demand for housing be it for upper class, middle class and for low income category of population.

Despite the growth of housing markets in India, for example, the current housing shortage was estimated to be over 22 million dwelling units between 2002 and 2007. The provision of finance for the purchase of residential housing is, or should be, an important part of any societys financial structure. Compared to a households average income, the purchase of a housing unit is a large investment in many cases it is in fact a households biggest lifetime investment.

The question of how to finance this investment is therefore a crucial one. Efficient housing for residential housing can encourage a better matching of households preferences for housing with the available and potential supply of housing, thereby improving social welfare. A well-functioning housing finance system typically has a catalytic impact on banking activities that link long-term investors with residential mortgage consumers credit.

HOUSING LOAN: A CHANGED SCENARIO

Traditionally in India, most people used to depend on their savings while considering buying a home. Provident fund and gratuity amounts received after retirement were the major sources of finance for employed or retired people looking for owning houses. However, with the emergence of housing finance as a major business in the country, an increasingly large number of people are going in for home loans. Earlier it was considered socially unviable to borrow funds. Theres been an evident shift in perception and mindset in the Indian middle class over the last 5 to 10 years, thanks to the impact of liberalization and opening up of the Indian economy, a rise in the average income across households, and a palpable desire to own things now. The present generation is more ambitious than the previous ones cannot be disrupted. Perhaps, it is that ambition which drives young people to buy a house, here is sea change in the Indian families. Indians are shifting from joint family concept to nuclear family concept. Incomes of families are rising and their purchasing capacities as well as loan repaying capacities are going up. Earlier a large number of borrowers used to be in their late 30s or early 40s but today greater numbers of borrowers are in their mid 30s. This change eventually brings more demand for housing finance. These projections suggest that demographic growth in Indias large cities will be high, partly due to population growth and partly due to immigration. These are some of the indications that signal bright future of housing finance industry which is currently facing tough times due to the ongoing economic recession. The major focus of government policies until 1970 was on agriculture and industry and housing was not the priority sector. In the 1970s, a network of housing boards at state level was incorporated with the Housing Urban Development Corporation (HUDCO) acting as an apex body, providing finance and technical support to these boards. After the initiation of the liberalization process in India, the government ha taken number of measures to promote housing from the formal sector and share the task of providing housing finance with the private sector.

Incorporation of National Housing Bank (NHB) in the year 1987 as the controlling body to formalize housing finance was one of the remarkable steps in this direction. Housing finance has emerged as a growth sector these days expected to grow at a phenomenal 39% PA. As per the estimates of NHB housing finance market was 45000 crores during the year 2003-04 and had reached at more than 80,000 crores till the end of 2006. Banks and financial institutions have brought sea changes in their strategies and there is clear shift from sellers market to buyers market. Liberal tax incentives by the government coupled with low and competitive interest rates has made this sector a high growth sector. Institutional growth of housing finance and development corporation (hdfc) and housing and urban development corporation (hudco) has encouraged the private sector banks to enter in to the home loan segment. This has resulted in increase of competitive dynamism among the different players of housing finance. Banks and other housing finance companies are offering attractive loans schemes with so many lucrative add-ons to the customers. Main features of these loan schemes are consumer flexibility, adjustable rate plans, lower processing fees, low Equated Monthly Installments (EMI), lower margin money, no pre-payment penalty etc. many of the players of housing finance have offered some add-ons with their loans such as life insurance, credit cards and consumer loans. Some of the players have offered tailor made loan schemes for repair, renovation, extension, conversion, improvement, painting, plumbing etc.

DOCUMENTATION REQUIRED WHILE APPLYING FOR A HOUSING LOAN:

While submitting the application form for a home loan, lenders ask for documents to establish the applicants income. This is backed up by a proof like copies of last three years INCOME TAX returns (along with the copies of computation of income/annual accounts, if any), Form 16 or Form 16A, last three month's salary slips of the applicant, copies of the last 6 month's statements of all active bank accounts in which applicants salary or business income details are reflected, etc.

For self-employed people, if the income has increased dramatically in the past year, it is advisable that the applicant should have his/her explanation ready as to why they think this is a permanent increase in their income, rather than just a one-time aberration which may decrease in near future. The reason for this is that if the lender is convinced with the applicants explanation, then the loan eligibility can be considered in relation to the latest income rather than considering the much lower average income. For salaried employees, if the income has increased since the last financial year as shown in their latest salary slips, such increased salary is taken into account for loan eligibility purposes.

APPLICANTS BANK STATEMENTS ARE SCRUTINISED FOR THEFOLLOWING: Level of activity: In case of self employed people, this gives a good idea about the extent of his or her business activities. Average bank balance: A look at the average bank balances maintained in a savings bank account speaks a lot about the spending or saving habits of an individual. Cheque returns: A small charge debited by the applicants bank in the statement indicates that a cheque issued by him or her was returned by the bank. Too many of such returns can have a negative impact on a loan sanction Cheque bounces: If cheques deposited by the applicants are returned by the issuer's bank, they will be visible in the bank statement. All Banks have specific norms as to how many such returns are acceptable in a period of 1 year. Periodic payments: The existence of periodic payments to other finance companies or bank etc indicates an existing liability and the applicant will needs to provide full details of these liabilities to the lender. Age proof: Applicants age proof have to be submitted such as school leaving certificate/driving license/passport/ration card/PAN card/election commission's card/etc. Address proof: Similar documents. Identification proof: Same as above, but with photographs. Sometimes, the same document, if it contains a photograph, the current residential address and the correct age can be proof for all 3 things. Applicants employment details: If the applicants employer is not well-known, then a short summary about the nature of the company, its business lines, its main customers, its competitors, number of offices, number of employees, turnover, profit, etc is needed. Usually, the company profile that is available on the standard website of the company is enough. Applicants investments: This helps the bank to estimate the applicants ability to pay the down payment as well as his or her saving habits.

INFORMATION RESOURCE FOR HOUSING LOANS IN INDIA

For many millions of Indians, the single greatest achievement in life was to own a home, and thanks to a range of banking services now available, home loans are a simple affair now. In fact, home loans are now sold as a product and the applicant is treated like a customer. Gone are the days when ordinary folk depended on a lifetime of savings and resorted to the local moneylender to build or buy a house. Home loans make it possible to move into your own home, almost as soon as you can afford the down-payment and keep paying for it while you also live in it. But the home loan is actually a mortgage and you could lose the home in case you are not able to pay it. Most banks have standard guidelines for applying for a home loan and a set of rules, which may vary, from one finance institution from the other.

The term of the loan may range from one year to thirty years, with varying interest rates. The longer the term, the higher the interest charged, usually. However, having decided on a longer term, a pre-payment of the loan also leads to pre-payment penalty- which usually ranges from one to two percent.

For instance, most home loan applicants have to be between twenty-one and fifty-eight years of age, or at least the guarantor has to be. There may be age limit extensions of government employees or selfemployed people who will not be forced to retire at sixty.

Applicants for home loans must prove to be credit-worthy before a loan is sanctioned by the bank or the finance institution concerned. For one, they will demand to see proof of income or some proof that the applicant now referred as a customer-has the resources to repay the loan. The EMI or the monthly installments will be a certain percentage of your income.

Taking a home loan also has tax advantages, which makes it a doubly good investment, as compared to other conventional forms of savings. Most banks have standard guidelines for applying for a home loan and a set of rules, which may vary, from one finance institution to the other.

New entrants

Despite the gloom in the real estate market, big corporate houses such as the Tatas and Anil Ambanis Reliance group are planning to enter in to the housing finance segment. Both the groups are already present in the segment through Tata Housing and Reliance Capital and are in the process of setting up separate housing finance companies (HFCs) to expand their operations. While Reliance Home Finance have received an approval from the National Housing Bank (NHB) last week on the other hand Tatas application to register Tata Capital Housing Finance is being scrutinised by the NHB. Religare, the financial services group of the former Ranbaxy promoters, is another national player that has shown interest for entering into the housing finance segment. The company has recently bid to acquire the home finance division of IDBI Bank. The growing interest among the companies to tap the housing finance market is an indication of its potential, S Sridhar, chairman and managing director, NHB. The governments recent financial stimulus package, which classified loans granted by banks to HFCs for lending to individuals for purchase or construction under the priority sector, is considered to be one of the major factors which has raised corporate interest in this segment. The refinancing window offered by the regulator to HFCs has made fund-raising easier and cheaper for such companies.

SECTORAL OVERVIEW

Post colonial India was traditionally a heavily planned and regulated economy with predominantly directed investment. The financial sector was subject to a variety of allocation and interest range regulations and only in the past decade has really progress been made in deregulation. Housing was not considered a priority sector, and, in fact was looked upon as a social good. In this environment, investment in low and moderate-income (LMI) housing was directed thought the housing and urban Development Corporation (HUDCO) a government owned entity.

Indias first private sector retail housing finance institution, the housing development and finance corporation (HDFC), was formed in 1978.Until then there was effectively no market rate housing finance available. HDFC steadily grew into a major force in this sector, despite the control credit allocation structure in the country. Other private sector competitors began to appear in 1983. In 1988, an apex institution, the national housing bank was created

In the early 1990s there were essentially three strands of financing flowing into LMI financing. The first and the largest were the continuing flow from HUDCO at below market prices. The major problem with this process was not just the non-sustainability of the pricing and rates, but the high degree of political intervention and default that was tolerated. The second was a significant amount of lending to moderateincome households by HFCs, which were required by NHB, to cross subsidise small loans by charging higher rates on bigger loans. Although there was evidence that many of these lower rate, smaller loans were taken by relatively higher income households, moderate income borrowers did receive some benefit from this system. The third was the flow of funds and technical assistance to NGOS. These amounts remained small and most such institution struggled under the burden of limited management capacity.

From 1993 onwards, the pace of deregulation has picked up, there was a slowing of the growth of NHB refinance, which has supported the cross subsidization by HFCs. A shift in fund raising efforts towards the attraction of fixed deposits at market rates from the public eliminated the capacity of private HFCs to continue cross subsidization. Interest rates of all kinds were allowed to be freely set and more and more lenders and borrowers accessed a free financial market place for funding, rather than a political market place of directed credit.

The housing finance sector has recently reached a major turning point, with deregulation proceeding to the point that new categories of market rate lenders have appeared- banks, ICICI, IDBI, LIC, UTI etc. lending to higher income groups has become very dynamic. This is the first and very important step in a process of introducing real competition and eventually greater pressure for going down market to LMI lending on a larger scale.

HUDCO As A Wholesale LMI Lender

HUDCO is the only HFC with a special mandate to server households below the median income. With its emphasis on the poor, HUDCO targets 55% of its housing finance, to the low-income group and weaker sections. HUDCO is basically a wholesale lender of local housing boards, channeling approximately its 95% of its loans and advances to these agencies, unfortunately most of these agencies have serious problems.

The often do not target their activities to lower income groups Due to poor demand assessment and project inefficiencies, large amounts of resources have ended up locked up in unsold property and housing units. The inefficiencies are aggravated by pervasive state controls on most aspects of functioning of housing agencies, and political directions on estate management project implementation.

One result is that the loan portfolios of these agencies are full of defaults, and some of the loans to them from HUDCO are themselves non performing. In other words, the central government does provide a large amount of funding through state and local government organs for LMI housing.

Role of National Housing Bank

The National Housing Bank (NHB) was set up in July 1988, under an Act of the Parliament. NHB was conceived and promoted to function as the apex institution in the housing sector and is wholly owned by the Reserve Bank of India. NHBs principal mandate has been to establish a network of housing finance outlets across the vast expanse of the nation to serve different income and social groups in different regions. The purpose of setting up more local and regional level specialised institutions is to have dedicated outlets for supply of housing credit. The need to set up this institution as the apex body stemmed from various factors. Most prominent amongst them was the acute shortage of funds confronting the housing sector and the resulting serious gap in housing supply. Absence of specialised and mature housing finance system resulted in inadequate finance for both individual loans and delivery of buildable/serviced land, building materials, cost-effective technologies and other related know-how. With the setting up of NHB in 1988, there has been a sustained effort at creating and supporting new set of specialised institutions to serve as dedicated centres for housing credit.

Objectives Of NHB
To promote a sound, healthy, viable and efficient housing finance system to cater to all segments of the population. To establish a network of housing finance outlets to adequately serve different regions and different income groups. To promote savings for housing. To promote appropriate technologies for housing. To strengthen the backward and forward linkages of the housing sector with rest of the economy. To augment the financial resources for the sector.

Functions of NHB
The activities of NHB can be broadly divided into following three categories:

Promotion & Development

Intervention through institutional credit can be made more effective by adoption of different approaches to cater to the needs of different income groups. With the setting up of NHB in 1988, there has been sustained efforts at creating and supporting new set of specialised institutions to serve as dedicated centres for housing credit. NHBs role in this regard can be measured from the growth of specialised institutions spread over the vast span of the country.

Regulatory Function

The second important function of NHB is the regulatory role assigned to it. The objective is to create the framework for an effective system of responsive regulation in tandem with the free market approach which would promote the credibility of the housing finance system among the savers and investors.

Financial Function

The third important role of NHB is to provide financial assistance to the various banks and housing finance institutions. As an apex refinance institution, the principal focus of NHBs programmes is to generate large scale involvement of primary lending institutions falling in various categories to serve as dedicated outlets for assistance to the housing sector. These institutions include scheduled banks (both commercial and cooperative), regional rural banks, specialised housing finance institutions, Agriculture and Rural Development Banks and the Apex cooperative housing finance societies. The National Housing Bank (NHB) has formulated a special Rural Housing Finance Scheme to mark the Golden Jubilee of Indian Independence.

Institutions Providing Housing Finance In India, the following types of institutions provide long-term finance for housing: Commercial banks; Cooperative banks; Housing finance companies; Regional rural banks; Agriculture and rural development banks; and Cooperative housing finance societies

The commercial banks are the largest mobilizer of savings in the country. In terms of coverage also, the banking system has the largest branch network. However, in the past, the savings mobilized were not being ploughed back to the households for shelter purposes. The reluctance on the part of the banks to extend credit for housing as a regular part of their business was basically due to their perceived role being limited to financing of working capital needs of commerce, industry and trade. Yet another factor was that the banks did not want to tie up their short resources in extending long-term housing loans. However, with the ongoing financial sector reforms and deregulation of the banking sector, the banks, such as SBI, PNB, etc. have become competitive players in the housing finance sector. Their advantage lies in the wide network and relatively lower cost of funds. Constraints in Expanding Financial Assistance The basic security for the loan to be given to the borrower is the mortgage of the property. In the case of farmers, the agricultural land cannot be mortgaged. In many rural areas, clear demarcation of the land for agricultural and other uses may not exist. Similarly, in many villages land records may not be available to verify the title to the land. Steps have been initiated to create land records where they are not in existence. Another impediment is the high registration charge imposed on transfer of land. If these charges could be lowered significantly, the affordability could be increased.

Integration of Informal Sector with Formal Sector The chief problem for the poorer people in any country is that they do not have access to institutional finance. It is, therefore necessary to find ways in which these people can be brought into the fold of institutional financing. Moreover, most of these people belong to the unorganized or informal sector. Although India can be proud of a mature primary market, the efforts of all HFIs and banks, including the foreign banks, tend to be focused within the formal sector, i.e., on the employee class. By and large, the informal sector comprising smaller businessmen, traders and others have been tapped only to a small extent. There are, of course, factors that preclude the provision of financial information by borrowers in this sector in a form and manner required by the financial institutions. Therefore, this segment of the population tends to look for non-institutional credit. A number of initiatives have been taken to bring in a majority of such population to the formal sector financial institution fold. The RBI has promoted self-help groups (SHG) and NGOs so as to expand their activities and deepen their role, link SHGs with banks and increase the building capacity of NGOs. Similarly, the emergence of a micro finance sector is also of recent origin. While this mode provided funds to people to set-up income-generating activities, over a period of time some of them have provided funds for shelter improvement as well. However, certain problems need to be sorted out. Some of these relate to the rates of interest, security for the loan, selection of borrowers, and credit appraisal. Others involve loan processing fees, end use of funds, and organizational problems at the SHG level, like the capacity to manage long term loans.

Issues in the Development of the Housing Finance Sector The major issue in the development of the housing sector is the availability of long-term resources. One such source is mortgage securitization, which is still at a nascent stage in India. Although NHB in association with some HFCs like, Can Fin Home has effected securitization of mortgage loans in various trenches, a lot of ground is left to be covered. The constraints arise from some legal issues, taxation matters and the regulatory environment.

As mortgage debt is regarded as related to immovable property, its transfer can only be effected by means of an instrument in writing, which requires payment of stamp duty for the instrument to be valid. The stamp duty on conveyancing ranges from 3% to 15% of the consideration for transfer in different states. Further, only a registered instrument can transfer such mortgage debt. As securitization envisages pooling of mortgages originated by housing finance institutions in different states, the requirement of registration not only makes the transaction too costly to be financially viable but also makes it impractical. Some of the state governments have realized the importance of mortgage backed securitization and have reduced the stamp duty payable on the instrument of securitization to 0.1%. A few others are expected to follow.

CASE STUDY
INTRODUCING HUDCO Housing and construction have been regarded as the engine of the economy on account of their inherent potential to kick starts the economy. Apart from being a basic human need, housing functions as the catalyst for the development of concomitant infrastructure and stimulates the growth of secondary and tertiary sectors. This is on account of the intrinsic chain of backward and forward linkages with other sectors of the economy, fuelling growth of ancillary industries such as cement, steel, brick and tiles, building material, paints and finishes etc. besides triggering off the demand for consumer goods as well as supporting services. Empirical evidence has established that along with the significant contribution to the national income and gap, housing is one of the largest employment generators in India.

Incorporated on 25 April 1970, HUDCO was an expression of the concern of the central government in regard to the deteriorating housing conditions in the country and a desire to assist various agencies in dealing with it in a positive manner. The principal mandate of HUDCO was to ameliorate the housing conditions of all groups with a thrust to the needs of low-income group (LIG) and economically weaker sections (EWS). HUDCO today has emerged as the leading national techno-financing institution with a major objective today of financing/encouraging the housing activity in the country and alleviating housing shortage of all groups in rural and urban areas and the development of urban infrastructure of various shades in human settlements.

Resource Mobilization HUDCO was established with an equity base of Rs 2 crore. Over the years, the Government has expanded the equity base. The present authorized capital base of HUDCO is Rs 2500 crore and paidup capital is Rs 2001.9 crore (as on March 31, 2009). HUDCO has created a reserve of Rs 2,665.96 crore as on 31st March 2009. The net worth of HUDCO is Rs. 4,647.46 crore. Over the years, HUDCO has further been able to mobilise resource from institutional agencies like LIC, GIC, UTI Banking Sector, International Assistance (Kfw, JBIC, ODA, ADB, USAID etc.) and market borrowings through debentures, taxable and tax-free bonds as well as through public deposits taking the overall borrowing to Rs. 19,249.32 crore

Programs In order to realize the objectives for which it was established HUDCO has implemented a variety of schemes for shelter and services, there by improving the living conditions of the people. Apart from financing housing schemes HUDCO is also contributing to improve the quality of life by augmenting basic community facilities and infrastructure services.

Projects involving self-help by the beneficiaries are promoted by encouraging sites and services schemes, core housing, skeletal housing, shelter up gradation and so forth. In order to provide basic facilities in the existing houses where adequate sanitary disposal systems are not available, financial assistance for basic sanitation schemes is being extended on liberalized terms. HUDCO extends assistance benefiting the masses on urban and rural areas under a broad spectrum of programs as listed below;

Housing

Urban housing Rural housing Staff rental housing Repairs and renewals Shelter and sanitation facilities for foot path dwellers in urban areas (night shelter, pay and use toilettes) Working women ownership condominium housing Housing through NGOs/ CBO's; Housing through private builders/joint sector Vambay Land acquisition

Infrastructure

Integrated land acquisition and development Basic sanitation Environmental improvement of slums Utility infrastructure Social infrastructure Economic and commercial Infrastructure

Building Technology

Building centers for technology transfer at the grass roots Building material industries

Consultancy Services
Consultancy in housing, urban development and infrastructure

Research And Training Capacity building and technical assistance to all borrowing agencies Research and training in human settlements

Eligible Agencies

HUDCOs financial assistance for these projects are made available to agencies which included state housing boards, rural housing boards, slum clearance boards, development authorities, improvement rusts, municipal corporations, state/city Para stalls, primary cooperative societies, apex cooperative housing federations, public and privates sector agencies, NGOs, CBSs professional private developers, joint sector individuals.

Housing

HUDCO assistance for urban housing started in 1970. Under urban housing, HUDCO has so far extended assistance for supporting 51.2 lakhs residential units Though HUDCO started assistance for rural housing only from 1977-78, its contribution to rural housing for weaker section has been significant and it has assisted in the construction of over 81.52 lakh rural houses.

HUDCO in its nearly 30 years of existence has reached people in over 1756 towns and hundreds of villages across the length and breadth of the country. The number of its borrowing agencies is on the ascent and has reached a high of over 1309 from a mere 12 in the beginning. At the outset, a loan of Rs 35 crores was sanctioned annually by HUDCO. HUDCO has show a quantitative jump in its operation over the last decade and HUDCO annual sanction in 2001-2002 alone had crossed Rs. 8140 crores.

The fund releases have increased from Rs. 270 crores in 1987 to 466 crores in 2001-2002

HUDCO finance is invariable project oriented and the objective is to ensure that projects are affordable to the target groups and at the same time technically sounds, financially viable and legally valid.

HUDCO has taken a number of steps to see that the houses built for all families remain well within their repaying capacity.

Housing

Housing options are provided to the different economic categories as given below The economically weaker section with household income of Rs 2500 per month or less The low income grow with household income from Rs 2501 to Rs 5500 per month The middle-income group with household income from Rs 5501 to Rs 10000 per month The high-income group with household income more than Rs 10001 per month

Considering the income brackets, HUDCO has evolved ceiling costs and loan limits for various income groups linked with affordability and prevailing costs of construction for various geo-climatologically contexts. These are kept under constant review for income limits costs of houses and loan limits.

HUDCO NIWAS

To provide housing finance to resident and non-resident Indians, HUDCO launched its retail finance window on Mar 1999. Ever since its launch it has received overwhelming response for it most competitive interest rates coupled with a broad based user friendly options and value added service as a part of its scheme. Loan is provided for construction or purchase of house/flat; for purchase of plot from public agencies and for extension or improvements on existing house. Interest calculated on monthly reducing balance Waiver of last two months installments if all earlier installment are paid on time Free personal accident insurance and insurance of borrowers house against fire and natural calamities. Low processing and administrative charges further reduction for armed/Para military/ police forces personnel, widow or physically challenged persons. No prepayment penalties Free counseling to alternate building technologies Free counseling on designing the house.

Urban Infrastructure

HUDCO has also been entrusted the responsibility to fianc urban infrastructure projects. For this, the ministry of urban development and poverty alleviation, govt. of India upto the year 2002-2003, provided additional equity support of Rs. 188.50 crores. HUDCO has so far sanctioned loan off Rs 20526 crores for 1933 urban infrastructure projects. These cover sectors of water supply, sewerage, and drainage, sold waste management, road/bridges. Transport nagar/terminal, airports, social infrastructure, area development projects, commercial complexes, integrated low cost sanitation and basic sanitation schemes.

The HUDCO Vision -2012

To emerge as the market leader by consolidating and elevating HUDCO image in the area of housing and urban loan infrastructure finance through market orientation involving public private and peoples participation and wider coverage of market both by way of reaching out the new segments and diversifying into related areas to provide new services; while keeping its social Commitments and promoting appropriated building technologies by means of a competent motivated, efficient workforce.

The corporate plan 2010 envisages the formation of independent and synergetic cells or empowered groups on the area of strategy planning. Business development, asset liability management, risk management, Consultancy management, organizational systems and estate development to ensure sustained business growth besides exploring new avenues of diversification.

The stress is on expansion of lending to housing and urban infrastructure, housing deliver through expanded avenues including retail financing, increased Consultancy assistance for projects in India and abroad, impetus to building technology trader initiatives and in house research and training programs with national/international networking.

INTRODUCING HUDCO NIWAS

The HUDCO NIWAS scheme emerging as a popular individual home loan-lending window continued to elicit an overwhelming response. Ever since the launch of the scheme in March 1999, it has benefited over 3.32 lakh families with a total sanction of Rs 2692.16 crores and disbursement of Rs. 2475.64 crores. During the year 2009-10 alone, an amount of Rs. 464. 03 crores have been sanctioned from 75296 applicants, besides accounting for a release of over Rs. 1006.73 crores.

As part of its objective to reach its beneficiaries directly, HUDCO is offering financial assistance to individual families to enable them to acquire a home of their own through its HUDCO NIWAS scheme.

HUDCO NIWAS offers the following schemes:

Individual housing finance scheme for resident Indians Individual housing finance scheme for non-resident Indians Bulk loans to govt. and public sector undertaking for HBA to their employees

HUDCO NIWAS offers loan assistant to/for: a) Construct a house/buy a house or flat; b) Extend or improve the existing house or flat c) Purchase a plot from public agencies/co-op societies of government employees/reputed developers. d) Registration of existing house including conversion from leasehold to free hold e) Refinancing of existing housing loans taken from other institutions f) Loan to professionals for non residential premises; g) Loan against residential property

Eligibility For Loan And How It Is Determined

a) An applicant must be in service or engaged in any profession or business with regular income for servicing the loan. b) The loan amount will not exceed 85% of the cost of the housing unit including incidental cost like stamp duty and registration. The maximum loan amount will be Rs. 50 lacs. c) The actual loan amount will be determined on the basis of repayment capacity. Repayment capacity takes into account factors such as income, age, qualification, number of dependents, spouses income, assets, liabilities, stability and continuity of occupation and savings history.

Loan Application

a) An application for loan shall be submitted in any HUDCO NIWAS office in the prescribed form along with supporting documents. This form with a list of supporting documents is available at any HUDCO NIWAS office. b) Proposed owners of the housing unit for which loan is sought will have to be co applicants. However all co-applicants need not be co- owners.

Loan Repayment Period

1. For purchase or construction of house or flat or composite loan 2. For purchase of Plots 3. For extension /improvement of existing house or flat 4. For registration of existing house

It is normally upto 15 years, but the period will not extend beyond the age of 65 years (relax able by 5years on the merits of each case) of the applicant. However, HUDCO NIWAS will endeavor to determine the repayment period to suit the convenience of the applicant. In case the applicant wished to extend the period of repayment beyond 15 years, it can be extended upto 20 years. However, in such cases, additional interest % will be charged over and above the rates quoted above. In case of floating rate of interest repayment period is upto 20 years

a) For loan to professional for non-residential premises. A maximum period of 10 years will be allowed for repayment of loan subject to the age of the applicant not exceeding 65 and repayment capacity.

b) For loan against residential property A maximum period of 5 years will be allowed for repayment of loan subject to age of the applicant not exceeding 65 years and repayment capacity.

Security For The Loan

Security for the loan is the first mortgage of the housing unit to be financed normally by way of deposit of title deeds and or such other collateral security as may be necessary. In some cases, interim security may be required. In all cases the applicant will be required to provide guarantee of one individual acceptable to HUDCO NIWAS. In respect of other applicants who have already availed house-building advance from their employers, HUDCO NIWAS may accept second mortgage of housing unit subject (a) central and state government employees-assignment of benefits under Central/State Government Group Insurance Scheme or else the repayment of the loan is completed before superannuating. (B) Public Sector Undertaking Employee loan is repaid by employer through salary deduction/ post dated cheques and repayment of loan is completed before superannuating of employee.

In respect of house or flat purchased on power of attorney, HUDCO NIWAS may extend loan provided alternate tangible security of adequate value is made available to HUDCO. Alternate security can be third party mortgage, mortgage of other property owned by applicant/co-applicant, pledge of UTI units, National Saving Certificates, LIC policies etc. of equivalent amount.

Fees
A processing fee (non- refundable) of 0.2% of the loan amount applied for i.e. Rs. 2/per Rs 1000/- of the loan applied for is payable subject to minimum of Rs. 250 /- at the time of submission of application form to HUDCO NIWAS
a) On sanction of a loan, the loan offer is made to the applicant. b) On acceptance of the offer on time administrative fee (non-refundable) of 0.4% of the amount of loan sanctioned is payable.

In case the applicant is from armed forces/ police / Para military or handicapped or is a widow, or employee of central/State/Government, PSUs /women/journalists and Artists, administrative fee will be 0.2% of the loan amount sanctioned.

OVERVIEW OF HOUSING LOANS OFFERED BY PROMINENT HFCs

Most of the institutions today offer quite a variety of housing loans to prospective borrowers. Loans can be availed for the following purposes:

Purchase house/ flat. Construction of house/ flat. Extend, repair, renovate or alter a house/ flat. Purchase a plot of land meant for construction of a dwelling unit

Interest rate options:

The borrower has an option of availing the loan either at a fixed rate of interest, which stays constant throughout the loan period, or at a floating rate of interest where the interest changes (increases or decreases) depending on changes in the Bank's Term Lending Rate.

LTV is the percentage of the value of property that the lender will provide. The remaining value of the property will be the owners contribution (also called the margin). The usual LTV values are as shown but differ from one HFC to another.

85% for new house/ flat 85% for old house/ flat 85% for purchase of a plot of land alone 20% for repairs and renovation

Loan amounts Most lenders are offering loans in the range of 10 million rupees but some go higher. Detailed description of each loan appears in the schedules comparing loans offered by major HFCs.

Tenure of loans Loan terms vary from 5,10, 15 years generally. Some HFCs are offering adjustable rate loans upto 20 or even 30 years. Repayment:

The borrowers repay the loan in Equated Monthly Installments (EMIs) comprising principal and interest. Repayment by way of EMI commences from the month following the month in which you take full disbursement.

Eligibility and repayment capacity You can avail a loan if you are 21 years or older and have a steady source of income. Repayment capacity takes into consideration factors such as income, age, qualifications, number of dependants, spouse's income, assets, liabilities, stability and continuity of occupation and savings history

TRENDS IN HOUSING FINANCE SECTOR

HOUSING finance stands tall in the financial sector today. Over the last four years, the business has added story upon story on safe foundations. This has attracted new entrants. The pace of this growth begs questions. Will the business continue to grow at the same rate over the next few years? Will the risk related to lending increase? How will the increased interest of commercial banks and the entry of new competition impact the housing finance market?

Mortgage Guarantee
National Housing Bank (NHB) is in the process of setting up a mortgage guarantee company in association with some foreign housing finance firms with a view to encourage housing loans for the "nonsalary informal class of the society". The company was expected to be formed by the end of this year and would become operational early next year. The non-formal sector, which is a major chunk of the Indian housing loan market, has not yet been seriously addressed by banks or housing finance companies due to the gravity of the risks involved compared to the salaried sector.

Scheme for Guaranteeing Bonds of HFCs

Housing Finance companies depend to a great extent on refinance assistance from NHB. However, the extension of refinance assistance by NHB is constrained by various factors like NHB's own NOF, HFCs' borrowing power etc. In addition, in the present liberalized environment, the HFCs prefer to raise resources directly from market in order to eliminate the cost of intermediation. Besides NHB refinance, HFCs mainly depend upon term loans from banks and public deposits. Of late, the maturity profile of public deposits has been shortening leading to asset liability mismatches for HFCs. One way to overcome this problem is floatation of bonds/debentures having a longer maturity period of say five to seven years. To attract the investors at competitively low rates, such bonds/debentures should have sufficiently high rating. Many of the HFCs have not been able to float bonds/debentures because of the lower credit rating from the rating agencies for various reasons including the inherent mismatch between assets and liabilities. NHB's intervention in this area was considered critical and accordingly a scheme was introduced to extend guarantee to the bonds/ debentures to be floated by HFCs meeting certain laid down criteria. Under the scheme, NHB will provide top ended guarantee relating to the repayment of principal and interest which will provide necessary credit enhancement and will enable HFCs to acquire higher credit rating leading to competitive pricing of these instruments. The salient features of the scheme are as under:

Conclusion
In the conclusion I would like to say that It was a very informative project. If you are wanting buying a home or refinancing your mortgage loan, you should be further attentive not to make large purchases on credit cards before your application until closing the mortgage refinancing or new home loan. Credit score companies might be slow in entering new activities into your history. So you may just scrape pass the credit score search first time round. Nevertheless, as the new spending begins appearing in your credit report, your rating may go down to a level that is not agreeable any longer. This project would rather help you a lot if you are planning to buy a home loan. It has all the details needed to know when you are going for a home loan. It is very important for us to decide whether we are taking the loan on fixed or floating intrest. Information regarding the various types of intrest is given in this project. HOME SWEET HOME it is very important to have a home to live in. thus I conclude be wise before taking an home loan. This project would make you wiser after you hve read it. And the intrest rates given in the project are of 2010 and are subject to change. The risk management process involves identification of the risks, deciding the appropriate exposure level to the risks and developing the strategies to manage the risk. Asset Liability Management is one such tool for managing the risks. NHB has recently issued the guidelines for putting in place a system of Asset Liability Management in HFCs and these guidelines are to be made operational with effect from the current year. Any risk management system requires data, which are accurate and available on time. Thus efforts should be made to capture the data from the various branches on time.

Biblography

1. www.Deals4loans.com 2. www.apnaloan.com 3. www.bankbazaar.com 4. www.wikipedia.com 5. NHB annual report 6. NHB-report on trend and progress in housing 7. NHB-Quarterly Newsletter 8. NHB Guidelines