The National Housing Bank (NHB) is in talks with a US-based insurance company to set up a Mortgage Guarantee Company which will provide credit guarantees to housing finance companies and commercial banks on behalf of clients seeking housing loans.
These guarantees will be given to clients seeking home loans in the range of Rs 5 lakh to Rs 45 lakh range and will help in boosting affordable housing segment both in rural and urban areas.
“Our talks with foreign mortgage company is in the last phase and we expect to float the entity in next one month,” S Sridhar, chairman and managing director of National Housing Board in Bangalore on Thursday.
NHB will be the single largest stakeholder of the proposed company with options of roping in some institutional investors into its fold, he said.
He, however, declined to give the exact amount of the initial authorised capital of the entity saying it may be fairly large exceeding Rs 1,000 crore.
Earlier, National Housing Bank was in talks with the American International Group (AIG) for setting up this mortgage guarantee company. However, the plans didn’t materialise due to heavy losses incurred by the insurance group during economic slowdown.
AIG, which posted a loss of around $10 billion during the fourth quarter of 2009, exited the proposed plan after the losses incurred during recession.
There is also a proposal to form a mortgage guarantee fund within the company.
Referring to various slabs within the proposed fund, Sridhar said, “There will be three divisions within the mortgage fund. One will be the provision for capital subsidy, second will be for interest subsidy, and third will be for mortgage subsidy.”
Capital subsidy will be for people who seek home loans less than Rs 5 lakh, in which the whole amount will be provided by the company with the help of government. In interest subsidy, interest will be lower for clients depending upon their low income per annum. Mortgage subsidy will be provided where the client can’t provide enough mortgage for securing a loan.
“These plans will help fulfil huge housing needs of the people and will give boost to affordable housing segment in general,” Sridhar said.
Affordable housing is seen as the next growth area in the real estate industry with a lot of push coming from the central government.
“Mortgage Guarantee Company will ensure guarantees to banks and other financial institution for those people who can’t get it due to the lack of proof of regular income and other factors,” he added.
It will also cater to the needs of people living below the poverty line for meeting their housing needs.
