Home loan defaulters have no room to hide

Housing finance firms start issuing notices

The party seems to be over for home loan defaulters. After commercial banks, it's the turn of the housing finance companies to crack the whip on loan defaulters.

Armed with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, Housing Development Finance Corporation (HDFC), LIC Housing Finance, Dewan Housing and other companies have started issuing notices to defaulters "" pay up or face eviction in 60 days.

The idea is to reduce non-performing assets (NPAs), which is an average 2 per cent for the home loan industry. Though Dewan Housing and HDFC both have reported NPAs of a little over 1 per cent, they see the use of the Securitisation Act as a deterrent to escalating NPAs.

Some housing finance companies like Cent Bank Home Finance saw its NPAs double to 13.1 per cent in the 2004-05 financial year against 6.33 per cent in the preceding year.

"We will adopt the legal procedure which is well defined in the Securitisation Act," said Kapil Wadwa, managing director, Dewan Housing Finance.

Auctioning of properties will start as housing finance companies do not intend to acquire the same on their books, said industry sources. Being immovable assets with no brand, these properties tended to be illiquid, they added.

Do borrowers have any recourse? Within 60 days, wilful defaulters can appeal to the debt recovery tribunals (DRTs). However, one would have to shell out 50 per cent of the outstanding amount of the loan to be eligible to file an appeal.

Till date, housing finance companies could only have a charge on the property and did not have the power to throw the owner out, said S N Chopra of Hill Estates.

"Our rights over the property was never legally enforceable in terms of taking it over. The Securitisation Act now gives us this enabling provision," said Wadwa.

The housing finance companies could earlier only take recourse to the court when it came to evicting defaulters. This could take anywhere between five to 10 years.

Dewan Housing had never foreclosed a single property, as the local law did not favour any foreclosure, Wadwa added.

Likewise, HDFC has not evicted any defaulter so far. All thsi is likely to change now.

Home loan companies have identified certain properties, which would fetch good value if they are auctioned in today's booming property market.

"The choice of property will be on a case to case basis as we do not want to spend too much on enforcing the property," said Wadwa.

Dewan Housing's loan to cost ratio (the loan amount against the value of the property) on its portfolio stands at 60 per cent.

Hence, even if property prices have fallen in a particular market, the financing company will still make a profit as it has already built in a cushion.

Moreover as many of these are old loans, the principle has already been paid.