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End of the Road for Home Loan

The paradigm of home loan marketing is set for a change. The practice of using ordinary direct selling agents (DSAs) by home loan financiers will soon be history.

National Housing Bank (NHB), the apex body for promoting and regulating specialized housing finance companies (HFC), is stressing on engaging certified mortgage counselors to ensure customers get fair advice before finalizing home loan deals.

This is aimed at protecting the interest of scores of home loan borrowers and insulates them from frauds. The proposed system will allow borrowers to take informed decisions.

With almost 25-30% annual growth in the home loan market, the DSAs have gained prominence over the years. Almost all leading financiers engage them for marketing their products. There is, however, no uniformity in DSAs’ marketing policies. These agents are not also accountable for their advisory service.

In many cases, this leads to complications at a later stage. According to a managing director of a HFC, the practice of using DSAs also encourages malpractice to a large extent. This system is likely to change now. NHB is trying to bring in transparency in home loan marketing by introducing a certified course for loan advisors, sources close to the development said. The matter has been discussed at a recent meeting between NHB and HFC officials.

The Indian Institute of Banking & Finance (IIBF) has for the last six months been working with NHB for developing the module for this certified course. A senior IIBF official said, this has now come to a conclusive stage and the course is ready to be introduced in a month. It is, however, yet to be decided whether certified agents will work for a single company or whether they can market home products of several companies. The agents will advise home loan borrowers on interest rates and documentation process. They are likely to earn a fee from borrowers. The fee structure is likely to be finalized by NHB. There is a parallel proposal to set up a joint forum of banks and HFCs which will function as a self regulatory organisation, especially to oversee home loan marketing practice of lenders. NHB and the Indian Banks Association are working on this plan.

The proposal is evolved in the lines of the Associations of Mutual Funds in India or Fixed Income Money Markets & Derivative Association of India.

The whole exercise is to align domestic practices with global best practices in customer protection. The three major mortgage markets in the world — the UK, US and Australia — follow comprehensive practices towards customer protection. For instance, in the US markets, lenders need to disclose all lending costs. There are several other Federal and state laws in the US which compelled home loan originators to disclose their lending practices to customers and general public.

Source : Economic Tim

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