Home loan rates may come down

While banks do not anticipate an immediate decrease in lending rates after the 150 basis-point cut in Cash Reserve Ratio by the Reserve Bank of India, real estate developers expect the measure to soften home loan rates for its consumers.

Demand for real estate property has decreased by nearly 25-30 per cent in the country over the last 18 months, when home loan rates soared from an average of 7 per cent to as high as 12-13 per cent.

“The home loan rate in India is among the highest in the world and we expect it to be reduced by at least 100 basis points after the cut in CRR,” said Pradip Kumar Chopra, Chairman, PS Group.

Abhijit Das, Regional Executive Director, JLL Meghraj, said, “The recent move by RBI is expected to enhance liquidity to the primary and secondary real estate funding, while arresting further de-growth in real estate investments in the country.”


Suspending loans

While banks had been reducing disbursements to the real estate sector over the last one and half years, the loans extended to “risky” projects dried up after banks fell short of liquidity, following the global financial crisis, said Sujit Kanoria, Managing Director, Shristi Infrastructure Development Corporation.

“We have temporarily suspended loan disbursements towards real estate projects,” said an official at the United Bank of India on condition of anonymity. The bank’s total loan outstanding with different real estate projects was Rs 2,500 crore as on March 31, he said.


Generating liquidity

The cut in CRR may now generate some extra liquidity to be extended to the sector, he felt.

“Our exposure to bank loans is only 5 to 15 per cent, making us less vulnerable to a liquidity crunch,” said Sushil Mohta, Director, South City and Merlin Projects.

Chopra said only rent-based commercial projects such as IT parks and shopping malls require bank loans, while funding for residential projects largely depend on advance bookings.


Pradeep Sureka, President, Confederation of Real Estate Developers Association of India and Managing Director, Sureka Group, said, “Banks are funding real estate sector with caution only after a project is sanctioned and construction has started. Time will say whether the cut in CRR will have any positive impact on the sector.”







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Bank of America BofA $8.6 billion Countrywide loans deal details

It is reported in the news that Bank of America or BofA has agreed to settle claims brought by state attorneys general regarding certain risky loans originated by Countrywide Financial Corporation in a deal that could be worth more than $8.6 billion, as reported in the Wall Street Journal.

How many borrowers will be covered in the Bank of America BofA Countrywide Financial deal?
It is estimated that around 390,000 borrowers will be covered in the Bank of America BofA Countrywide Financial deal.

To whom would the Bank of America BofA Countrywide Financial deal be applied?
The deal would apply to borrowers who took out subprime loans with adjustable or fixed interest rates as well as those with option adjustable-rate mortgages that are serviced by Countrywide.
The cost of the program will be split between the bank and investors who own securities that have mortgages originated by Countrywide or by third parties who sold those loans to Countrywide.

What are the terms of the Bank of America BofA Countrywide Financial deal?
Under the terms of the deal, Bank of America has agreed to, if possible, modify the terms of the loans and will first try to refinance borrowers into government-backed loans under the federal Hope for Homeowners program, which will require a cut in the principal

Are there any options available in the Bank of America BofA Countrywide Financial deal?
YES. Another option would be to lower the interest rate -- in some cases to as low as 2.5 percent -- and then raise it over time.
For borrowers with option adjustable-rate mortgages, the bank will lower loan amounts so that borrowers have as much equity, if not more, than when they took out the option ARM.
The modification program is valued at as much as $8.4 billion and the costs of the program "have already been estimated and accounted for" by Bank of America as part of its acquisition of Countrywide.
California, Florida and Illinois, where Countrywide has faced civil lawsuits, played a key role in negotiating the settlement.





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