1. 1. PROBLEMS AND PROSPECTS OF REVERSE MORTGAGE IN INDIA Ramees Ali.PN 12B6CMA103 Krupanidhi College Bangalore
2. 2. Introduction to Reverse Mortgage Getting old without any proper financial cover can be upsetting. With the rising cost of living and no regular income at a senior age there can be significant problems. For senior citizens the ideal situation will be to get a regular income flow without having to do any job, but is that possible?
3. 3. Reverse Mortgage Loan (RML) enables a Senior Citizen i.e. above the age of 60 years to avail of periodical payments from a lender against the mortgage of his/her house while remaining the owner and occupying the house. The borrower(s) will continue to use the residential property as his/her/their primary residence till he/she/they is/are alive, or permanently move out of the property, or cease to use the property as permanent primary residence. Contd.
4. 4. National Housing Bank The National Housing Bank (NHB) is a state owned bank and regulation authority in India, created on July 8, 1988[ under section 6 of the National Housing Bank Act (1987). The headquarters is in New Delhi and its total staff June 30, 2008 was 80. The institution, owned by the Reserve Bank of India, was established to promote private real estate acquisition. The NHB is regulating and re-financing social housing programs and other activities like research and IT-initiatives, too.
5. 5. Process of Reverse Mortgage
6. 6. Statement of the Problem This study will help to understand the Reverse Mortgage Scheme in India. A reverse mortgage is a particular kind of home equity loan that allows the owner to cash in some of the equity in her home. To be eligible for a reverse mortgage, a borrower must be 62 years of age or older, own the home outright and have no other liens against the home. The borrower does not have to satisfy any credit or income requirements. The study finds the status of reverse mortgage in India and also gives an overview of the problems and future prospects on reverse mortgage scheme in India.
7. 7. Objective of the Study Analyze the future prospects of the lending scheme in India. Find out the Risks associated with it in current scenario (Recovery after global economic meltdown). To find out the welfare gain to senior citizens from Reverse Mortgage Scheme. To study of other available banks Reverse Mortgage Scheme. To study the sources of Indian data relevant to Reverse Mortgage.
8. 8. Hypothesis of the Study Ho Reverse Mortgage is not a well known concept in India. H1 Reverse mortgage is a well known concept in India.
9. 9. Methodology Type of Research method: The study is both descriptive and analytical nature. Type of Sampling: Convenience sampling, a non-probability sampling method is used for the study. Sample Size: Total samples of 100 respondents were contacted who responded to the questionnaires. Statistical Tools Used for Analysis and Interpretation: The data collected with the help of the structured questionnaire from 100 respondents is tabulated and analysed using a percentage method and ranking method. Graphical tools like pie charts is used to illustrate the tabulated data pictorially. Inferences and interpretation are drawn based on the information available for the study.
10. 10. Findings The respondents are well aware of Reverse mortgage loan they are not availing the loan just because of the reason that in most of the cases the home that is kept as a mortgage will be taken up by the bankers where in the property will not pass on to the offspring. The most attractive scheme in terms of reverse mortgage is Home reversion scheme/ Sale and lease back scheme and the second is Mortgage annuity or home income. In most of the cases it was found that lack of fixed monthly income is the most optimistic reason for availing reverse mortgage loan. The senior citizens think of availing reverse mortgage loan jut because they lack well planned retirement benefit which makes them to depend on their children for their living.
11. 11. Suggestions Risky to the lender - especially in the context of absence of suitable property appreciation rates. Safe from lender's perspective because crossover risk is minimized Government may initiate an insurance scheme to share the burden of Crossover Risk of lenders to encourage these products. A study needs to be conducted among the senior citizens in different classes of cities to understand the income needs, their views on utilizing the house equity when they are alive for luxury needs
12. 12. Conclusion Reverse mortgage in simple terms is a rather unconventional retirement tool. The loan contract provides for foreclosure under such conditions, this seems to be impractical and sure to result in litigation and bad publicity for the lender. Experience to date may not be a reliable guide to the future as most of the experimental schemes are in their infancy. Losses due to moral hazard may take many years to develop. Competitive pressures for achieving volumes in future may increase this risk.