NHB, CorpBank & LIC to finalise new reverse mortgage plan

15-Dec-2011
Source : Financial Chronicle
By Sagar Sen,
The National Housing Bank (NHB) will resume talks this week with government-owned Corporation Bank for introducing a reverse mortgage product. NHB has already teamed up with Life Insurance Corporation of India (LIC) for developing a reverse mortgage product.
NHB, Corporation Bank and LIC are set to become three-way partners through a pact for development, marketing and distribution of reverse mortgages. Corporation Bank’s role in this tie-up is yet to be decided.
“We were already in talks with Corporation Bank and LIC for sometime. However, talks with Corporation Bank were put on hold due to some changes at the top management level. We expect the MoU (memorandum of understanding) to be signed very soon after which the product can be launched,” said R V Verma, chairman and managing director of National Housing Bank.
In a reverse mortgage product, legal heirs of the reverse mortgage holder are given the option to pay off the loan and take ownership of property. However, if legal heirs do not intend to pay the outstanding mortgage amount, the property is sold off and the proceeds are used to recover the loan and the rest is passed on to family members. In case there is an insurance element in a reverse mortgage, the final payment is settled as per premiums/annuities paid on the product.
Predominantly, banks provide reverse mortgage products. However, Star Union Dai-ichi Life Insurance is the only life insurance company that had launched a reverse mortgage product in December 2009.
At present, about 10 banks and four housing finance institutions are selling reverse mortgage products.
Star Union Dai-ichi’s product was also formulated by NHB that is being backed by loans from Central Bank of India and Union Bank of India. The insurer has managed to garner Rs 36 crore premium money and has sold 103 reverse mortgage policies since it launched the product.
Interestingly, the housing finance arm of LIC, LIC Housing Finance already has a reverse mortgage product. Reverse mortgage products from insurers have an insurance component and provides regular payment throughout policyholder’s life by mortgaging his or her house with the bank with whom the insurer has a tie-up.
However, products sold by banks generally pay monthly cash with cut off limit for 20 years. The quantum of monthly payment (annuity) paid by an insurance company is also significantly higher.
The loan quantum depends on factors like market value of the house, borrower’s age and interest rates. However, the bank that is disbursing the loan has the final right to decide on the loan amount. For life insurance company products also, banks provide a loan on which insurer pays annuities to the policyholder.
In the three-way tie up of NHB, LIC and Corporation Bank, NHB will create awareness about the product, create a necessary framework and provide documentation assistance. NHB will also coordinate with various government bodies.
Reverse mortgage products are witnessing growth in specific zones, particularly in the southern, western and parts of northern India. Although, people are still a little reluctant to mortgage their property in small towns, people in big cities, especially, senior citizens are looking forward to a product that assures them a steady source of funds.
These products particularly suit people who are above 60 years old, living alone and do not have any alternate source of income. NHB says as soon as LIC steps into the reverse mortgage segment, other insurers will also follow suit and come up with similar products.