1.

1 INTRODUCTION

A mortgage loan or, simply, mortgage (/ˈmɔːrɡɪdʒ/) is used either by purchasers

of real property to raise funds to buy real estate, or alternatively by existing property

owners to raise funds for any purpose, while putting a lien on the property being

mortgaged. The loan is "secured" on the borrower's property through a process known

as mortgage origination. This means that a legal mechanism is put into place which

allows the lender to take possession and sell the secured property ("foreclosure" or

"repossession") to pay off the loan in the event the borrower defaults on the loan or

otherwise fails to abide by its terms. The word mortgage is derived from a Law

French term used in Britain in the Middle Ages meaning "death pledge" and refers to

the pledge ending (dying) when either the obligation is fulfilled or the property is taken

through foreclosure. A mortgage can also be described as "a borrower giving

consideration in the form of collateral for a benefit (loan)".

Mortgage borrowers can be individuals mortgaging their home or they can be

businesses mortgaging commercial property (for example, their own business premises,

residential property let to tenants, or an investment portfolio). The lender will typically

be a financial institution, such as a bank, credit union or building society, depending on

the country concerned, and the loan arrangements can be made either directly or

indirectly through intermediaries. Features of mortgage loans such as the size of the

loan, maturity of the loan, interest rate, method of paying off the loan, and other

characteristics can vary considerably. The lender's rights over the secured property take

priority over the borrower's other creditors, which means that if the borrower

becomes bankrupt or insolvent, the other creditors will only be repaid the debts owed to

them from a sale of the secured property if the mortgage lender is repaid in full first.

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In many jurisdictions, it is normal for home purchases to be funded by a mortgage loan.

Few individuals have enough savings or liquid funds to enable them to purchase

property outright. In countries where the demand for home ownership is highest, strong

domestic markets for mortgages have developed. Mortgages can either be funded

through the banking sector (that is, through short-term deposits) or through the capital

markets through a process called "securitization", which converts pools of mortgages

into fungible bonds that can be sold to investors in small denominations.

According to Anglo-American property law, a mortgage occurs when an owner

(usually of a fee simple interest in realty) pledges his or her interest (right to the

property) as security or collateral for a loan. Therefore, a mortgage is

an encumbrance (limitation) on the right to the property just as an easement would be,

but because most mortgages occur as a condition for new loan money, the

word mortgage has become the generic term for a loan secured by such real property.

As with other types of loans, mortgages have an interest rate and are scheduled

to amortize over a set period of time, typically 30 years. All types of real property can

be, and usually are, secured with a mortgage and bear an interest rate that is supposed

to reflect the lender's risk.

Mortgage lending is the primary mechanism used in many countries to finance private

ownership of residential and commercial property (see commercial mortgages).

Although the terminology and precise forms will differ from country to country, the

basic components tend to be similar:

 Property: the physical residence being financed. The exact form of ownership will

vary from country to country, and may restrict the types of lending that are

possible.

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 Mortgage: the security interest of the lender in the property, which may entail

restrictions on the use or disposal of the property. Restrictions may include

requirements to purchase home insurance and mortgage insurance, or pay off

outstanding debt before selling the property.

 Borrower: the person borrowing who either has or is creating an ownership interest

in the property.

 Lender: any lender, but usually a bank or other financial institution. (In some

countries, particularly the United States, Lenders may also be investors who own an

interest in the mortgage through a mortgage-backed security. In such a situation,

the initial lender is known as the mortgage originator, which then packages and

sells the loan to investors. The payments from the borrower are thereafter collected

by a loan servicer.[3])

 Principal: the original size of the loan, which may or may not include certain other

costs; as any principal is repaid, the principal will go down in size.

 Interest: a financial charge for use of the lender's money.

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1.2 NEED FOR THE STUDY

Many other specific characteristics are common to many markets, but the above are the

essential features. Governments usually regulate many aspects of mortgage lending,

either directly (through legal requirements, for example) or indirectly (through

regulation of the participants or the financial markets, such as the banking industry),

and often through state intervention (direct lending by the government, direct lending

by state-owned banks, or sponsorship of various entities). Other aspects that define a

specific mortgage market may be regional, historical, or driven by specific

characteristics of the legal or financial system.

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1.3 SCOPE OF THE STUDY

Mortgage loans are generally structured as long-term loans, the periodic payments for

which are similar to an annuity and calculated according to the time value of

money formulae. The most basic arrangement would require a fixed monthly payment

over a period of ten to thirty years, depending on local conditions. Over this period the

principal component of the loan (the original loan) would be slowly paid down

through amortization. In practice, many variants are possible and common worldwide

and within each country.

Lenders provide funds against property to earn interest income, and generally borrow

these funds themselves (for example, by taking deposits or issuing bonds). The price at

which the lenders borrow money therefore affects the cost of borrowing. Lenders may

also, in many countries, sell the mortgage loan to other parties who are interested in

receiving the stream of cash payments from the borrower, often in the form of a

security (by means of a securitization).

Mortgage lending will also take into account the (perceived) riskiness of the mortgage

loan, that is, the likelihood that the funds will be repaid (usually considered a function

of the creditworthiness of the borrower); that if they are not repaid, the lender will be

able to foreclose on the real estate assets; and the financial, interest rate risk and time

delays that may be involved in certain circumstances.

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1.4 OBJECTIVES OF THE STUDY

The main objective of doing this project is to study the corporate culture and

creating awareness among the customers about home loan products of STATE BANK

OF INDIA. During this student internship program period I have to achieve some thing

which is helpful to the development of myself and some value addition to the company.

Generating business to the company is the main objective. It gives me good exposure of

myself and creating good impression of corporate mind.

 The main objective of this study is to know the Customers perceptions about

MORTGAGE loans of STATE BANK OF INDIA.

 Generating good business to the company by promoting and selling the products

of STATE BANK OF INDIA.

 To know the ideas of customers about home loan products and services.

 To get the knowledge about different loan products of STATE BANK OF

INDIA.

 Creating awareness of STATE BANK OF INDIA products in the minds of

Walk-in customers in the bank.

 Fixing the appointments with the customers.

 Visiting the customers and closing the deal.

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1.5 RESEARCH METHODOLOGY OF THE STUDY

The study is both descriptive and analytical in nature. It is a blend of primary data and

secondary data.The primary data has been collected personally by approaching the

online share traders who are engaged in share market. The data are collected with a

carefully prepared questionnaire. The secondary data has been collected from the

books, journals and websites which deal with online share trading.

Source of data

Primary Sources: The primary data was collected through structured unbiased

questionnaire and personal interviews of investors. For this purpose questionnaire

included were both open ended & close ended & multiple-choice questions.

Secondary method: The secondary data collection method includes:

 Websites

 Journals

 Text books

Method Used For Analysis of Study

The methodology used for this purpose is Survey and Questionnaire Method. It is a

time consuming and expensive method and requires more administrative planning and

supervision. It is also subjective to interviewer bias or distortion.

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2.1 LITERATURE REVIEW

MORTGAGE LOANS

Until recently, there were two main ways to get cash from your home the first

one is you could sell your home, but then you would have to move and the second one

is you could borrow against your home, but then you would have to make monthly

loan repayments. Now there is a third way of getting money from your home that does

not require you to leave it or to make regular loan repayments that is “ MORTGAGE

LOANS”. A MORTGAGE LOANS is a loan against your home that you do not have

to pay back for as long as you live there. With a MORTGAGE LOANS, you can turn

the value of your home into cash without having to move or to repay a loan each

month. No matter how this loan is paid out to you, you typically don’t have to pay

anything back until you die, sell your home, or permanently move out of your home.

MORTGAGE LOANSs is a powerful tool to help eligible homeowners obtain tax-free

cash flow. MORTGAGE LOANSs enable eligible homeowners to access the money

they have built up as equity in their homes. They are primarily designed to strengthen

seniors’ personal and financial independence by providing funds without a monthly

payment burden during their lifetime in the home. The major eligibility requirements

are that the person must be at least 62 years of age and should own a home.

MORTGAGE LOANS is emerging as a significant financial security tool for senior

homeowners because of the broad range of needs these unique loans can satisfy.

Senior homeowners of all income levels have taken out MORTGAGE

LOANSs for many different reasons. For some, MORTGAGE LOANSs provide the

extra money that let them stay securely in their homes throughout retirement. For

others, MORTGAGE LOANSs provide a means to live more comfortably and pursue

their dreams. Its a special type of mortgage which allows the senior homeowner to

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access their equity which they have built up in the form of the home and use the money

according to their wish, all this while letting owner stay in his home. It’s called a

MORTGAGE LOANS because the flow of payments is loansd from a traditional

mortgage.

The lender makes payments to the owner, or arranges a line of credit that is

available for the owners use. This differs from a traditional mortgage used to purchase

or refinance a home in which you must make monthly mortgage payments to the bank.

To qualify for most loans, the lender checks the applicant’s income to see how

much he can afford to pay back each month. But with a MORTGAGE LOANS, he

doesn’t have to make monthly repayments. So the owner or the applicant doesn’t need a

minimum amount of income to qualify for a MORTGAGE LOANS. He could have no

income, and still be able to get a MORTGAGE LOANS. With most home loans, if a

person fails to make his monthly repayments, he could lose his home. But with a

MORTGAGE LOANS, he doesn’t have any monthly repayments to make. So he can’t

lose his home by failing to make them. MORTGAGE LOANSs typically require no

repayment for as long as the owner or co-owner live in the home. So MORTGAGE

LOANS differ from other home loans in these important ways, the first one is the

applicant don’t need an income to qualify for a MORTGAGE LOANS and the second

one is he don’t have to make monthly repayments on a MORTGAGE LOANS.

MORTGAGE LOANSs have a different purpose than forward mortgages do. With

a forward mortgage, you use your income to repay debt, and this builds up equity in

your home. But with a MORTGAGE LOANS, you are taking the equity out in cash.

So with a MORTGAGE LOANS your debt increases and your home equity decreases.

It’s just the opposite, or loans of traditional mortgage. During a MORTGAGE

LOANS, the lender sends you cash, and you make no repayments. So the amount you

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owe (your debt) gets larger as you get more cash and more interest is added to your

loan balance. As your debt grows, your equity shrinks, unless your home’s value is

growing at a high rate. When a MORTGAGE LOANS becomes due and payable, you

may owe a lot of money and your equity may be very small. If you have the loan for a

long time, or if your home’s value decreases, there may not be any equity left at the end

of the loan. In short, a MORTGAGE LOANS is a “rising debt, falling equity” type of

deal. But that is exactly what informed MORTGAGE LOANS borrowers want to

“spend down” their home equity while they live in their homes, without having to make

monthly loan repayments.

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Difference between traditional mortgage and MORTGAGE LOANS

Item Mortgage MORTGAGE LOANS

Purpose of loan to purchase a home to generate income

Before closing borrower has no equity in borrower has a lot of

the home equity in the home

At closing borrower owes a lot, and borrower owes very little,

has little equity and has lot of equity

During the loan, makes monthly payments receives payments

borrower... to the lender from the lender

loan balance goes down loan balance rises

equity grows equity declines

At end of loan, owes nothing owes substantial

borrower... amount

has substantial equity

has much less,

little, or no equity

Type of Falling Debt- Rising Rising Debt- Falling

Transaction Equity Equity

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History and Origin of MORTGAGE LOANS

The history of MORTGAGE LOANS goes back to 1961.In the year 1961 the first

MORTGAGE LOANS loan was made by Nelson Haynes of Deering Savings & Loan

(Portland, ME) to Nellie Young, the widow of his high school football coach.In the

year 1963 the first property tax deferral program offered in Oregon, financed through

Public Employees Retirement Fund.In 1970 Survey research on a "housing annuity

plan" was conducted in Los Angeles by Yung-Ping Chen of UCLA. In 1975 Technical

monograph on "Creating New Financial Instruments for the Aged" authored by Jack

M. Guttentag of The Wharton School.In 1977 First RM loan program, "Equi-Pay",

introduced by Arlo Smith of Broadview Savings & Loan in Independence, OH.In 1978

" MORTGAGE LOANS Study Project" funded by Wisconsin Bureau on Aging,

directed by Ken Scholen and First statewide deferred payment loan program offered by

WI Dept of Local Affairs and Development, designed by William Perkins.In 1979 First

national " MORTGAGE LOANS Development Conference"sponsored by WI Bureau

on Aging in Madison, WI on May 21-22.San Francisco Development Fund's "Loans

Annuity Mortgage(RAM)" program funded by Federal Home Loan ank Board,

foundations, and WI Bureau on Aging; directed by Don Ralya .

In 1980 Unlocking Home Equity for the Elderly, edited by Ken Scholen and Yung-

Ping Chen, published by Ballinger (Cambridge, MA) .Two-year "Home Equity

Conversion Project" funded by U.S.Administration on Aging, directed by Ken Scholen

FHA MORTGAGE LOANS insurance proposal by Ken Scholenendorsed by housing

pre-conference to 1981 White House Conference on Aging.In 1981 National Center for

Home Equity Conversion (NCHEC) incorporated as independent, non-profit

organization in Madison, WI; directed by Ken Scholen U. S. House Select Committee

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on Aging hears first Cong- ressional testimony on MORTGAGE LOANSs, by Ken

Scholen White House Conference on Aging endorses proposal for FHA RM insurance,

recommending that "the FHA should develop an insurance program for MORTGAGE

LOANS loans" Newsweek, Time, U.S. News, Good Morning America

provide first national media exposure for MORTGAGE LOANSs San Francisco RAM

program closes first loans.In 1982 "National Potential for Home Equity onversion"

authored by Bruce Jacobs (University of Rochester) San Francisco RAM program

expands to new sites in California, directed by Bronwyn Belling.U. S. Administration

on Aging funds NCHEC research on federal issues - including FHA RM insurance U.

S. Senate Special Committee on Aging stages first hearing on MORTGAGE LOANSs;

staffed by John Rother; testimony by Ken Scholen, Jack Guttentag, Maurice Weinrobe,

James Firman U. S. Senate Special Committee on Aging issues report citing need for

MORTGAGE LOANS insurance Garn-St. Germain Depository Institutions Act clears

regulatory path for MORTGAGE LOANSs; first federal statutory recognition of

MORTGAGE LOANSs.

In 1983 Federal Council on Aging supports proposal for FHA MORTGAGE

LOANS insurance. FHA MORTGAGE LOANS insurance demonstration program

proposed by U.S. Department of Housing and Urban Develop- ment (HUD) in housing

bill "RMs: Problems and Prospects for a Secondary Market and an Examination of

Mortgage Guaranty Insurance", authored by Maurice Weinrobe (Clark University)

"National Development Conference" sponsored by NCHEC with HUD support in

Washington, DC; greetings sent by President Reagan and Representative Claude Pepper

U.S. Administration on Aging funds NCHEC information and training project "Home

Equity Financing of Long-Term Care for the Elderly" byBruce Jacobs (University of

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Rochester) and William Weissert (Urban Institute)FHA insurance proposal by Sen John

Heinz adopted by Senate;House-Senate conference committee mandates HUD study. In

1984 First open-ended, risk-pooling MORTGAGE LOANS offered by American

Homestead in New Jersey SF RAM program and NCHEC provide training and

technical assistance to new MORTGAGE LOANS programs in AZ, MA, NY, WI

Prudential-Bache announces marketing agreement with American Homestead Social

Security Administration releases policy memo on treat- ment of income from HEC

plans.

In 1985 HUD sponsors conference on home equity conversion.U. S. Senate &

House Aging Committees sponsor joint briefing session for Congressional taffers,

moderated by Ken Scholen Line-of-credit development project initiated by United

Seniors Health Cooperative (DC), directed by Bronwyn Belling First "split-term" RM

offered by CT Housing Finance Agency, designed by Stuart Jennings and Arnold

Pritchard . In 1986 "Home Equity Information Center" established by AARP, directed

by Katrinka Smith Sloan American Homestead expands into CT, OH, and PA

California Home Equity Conversion Coalition established by RAM program counselors

MA Elderly Equity Program funded by Commonwealth of Massachusetts, directed by

Len Raymond HUD releases study opposing a federal MORTGAGE LOANS

insurance demonstration AARP releases analysis by Ken Scholen critiquing HUD

study; AARP urges enactment of federal RM insurance demo.

In 1987 NCHEC completes studies on home equity financing of long-term care

for Minnesota and Connecticut U.S. House Ways and Means Committee hears

testimony on HEC and long-term care by James Firman United Seniors) and Ken

Scholen (NCHEC) Congress passes FHA MORTGAGE LOANS insurance proposal

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American Homestead expands into DE, MD, and VA "Home-Made Money: A

Consumer Guide to HEC" published by AARP, authored by Ken Scholen .In 1988

National survey of members' MORTGAGE LOANS needs and preferences by AARP

FHA MORTGAGE LOANS insurance legislation signed by President Reagan on

2/5/88; Judith V. May named to develop program HUD announces HECM

development team including Edward Szymanoski, Jr, Patrick Quinton, Donald

Alexander, and Mary Kay Roma "Innovation in Hone Equity Conversion" conference

sponsored by AARP; attracts 200 participants from 25 states New plan announced by

Capital Holding Corporation (Louisville, KY); 10th largest investor-owned insurance

company in America; "Home Income Security Plan" first offered in KY, MD, and VA

First line-of-credit MORTGAGE LOANS developed by VA Housing Development

Authority American Homestead expands into CA Providential Home Income Plan

(San Francisco) offers shared-appreciation plan throughout CA HUD releases proposed

regulations for FHA MORTGAGE LOANS insurance program Fannie Mae announces

intention to purchase MORTGAGE LOANSs insured by FHA U. S. Administration on

Aging announces cooperative agreement with HUD to sponsor training of

MORTGAGE LOANS counselors.

In 1989"A Financial Guide to MORTGAGE LOANSs" by Ken Scholen for

NCHEC introduces total loan cost rate method for analyzing costs HUD selects 50

lenders by lottery to make first FHA-insured MORTGAGE LOANSs. Software for

determining MORTGAGE LOANS loan advances developed by FHA and made

available to the public Wendover Funding (NC) announces program for servicing FHA-

insured MORTGAGE LOANSs HUD releases "Home Equity Conversion Mortgage"

(HECM) Fourteen 2-day HECM counselor training sessions conducted by Bronwyn

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Belling (AARP) and Ken Scholen (NCHEC) for FHA Capital Holding expands into CA

and FL FNMA announces policies for purchasing FHA-insured (HECM)

MORTGAGE LOANSs First FHA-insured HECM made to Marjorie Mason of

Fairway, KS by the James B Nutter Co National Center for Home Equity Conversion

(NCHEC) moves from Madison, WI to Marshall, MN .In 1990 AARP releases FHA

Counselor Training and Reference Manual, by Bronwyn Belling and Ken Scholen

American Homestead and Providential suspend lending as recession and falling

appreciation expectations dry up debt sources for new loansFourteen more 2-day

counselor training sessions conducted by Bronwyn Belling (AARP) and Ken Scholen

(NCHEC) for HUD "Loans Angle" newsletter published for FHA counselors by AARP

Home Equity Information Center Congress increases FHA insurance authority to

25,000 loans by 9/31/95; requires disclosure of total loan cost & development of equity

reserve option AARP publishes "Model State Law on MORTGAGE LOANSs" HUD

publishes "FHA Home Equity Conversion Insurance Demonstration: A Model to

Calculate Borrower Payments and Insurance Risk," by Edward Szymanoski Jr.

In 1991 Los Angeles County Employees Retirement Association sponsors

information seminar on MORTGAGE LOANSs as a potential fund investment and

member benefit AARP publishes 3rd edition of "Home-Made Money" by Ken

Scholen; distribution tops 250,000 New consumer guide developed by Federal Trade

Commission in partnership with NCHEC and AARP HUD publishes new regulations

making MORTGAGE LOANS insurance available to all FHA lenders Interim report

on FHA program by Judith V. May Retirement Income On The House: Cashing In On

Your Home With A "Loans" Mortgage, First lifetime MORTGAGE LOANS programs

proposed by Peter Mazonas of Homefirst (San Francisco) and Robert Bachman of

Home Equity Partners (Irvine, CA) FNMA expands funding for expanded HECM

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program; develops comprehensive "Instruction Package" Wendover Funding announces

correspondent program and "starter kit" for lenders First multi-state HECM lending

programs developed by International Mortgage (DE, DC, MD, PA, VA, WV), Directors

Mortgage (AZ, CA, NV), and ARCS Mortgage (CA, HI, NY, OR, WA).

In 1992 Capital Holding Corporation airs 60-second and 120-second prime-time

network television ads in CA and FL for its "Homearnings" plan Initial public stock

offering by Providential Home Income Plan attracts strong investor interest AARP

publishes 79-page discussion paper on MORTGAGE LOANS counseling by Ken

Scholen AARP releases videotape for counselor training written and narrated by Ken

Scholen U. S. Securities & Exchange Commission issues directive prohibiting interest

accrual in MORTGAGE LOANS accounting U. S. Securities & Exchange

Commission rescinds previous directive; issues directive on effective yield method for

MORTGAGE LOANS accounting AARP sponsors community coalition-building

seminars in support of HECM development in OH, WI, IA, NY, NJ, PA, IL Retirement

Income On The House: Cashing In On Your Home With A "Loans" Mortgage named

best book of 1992 on financial services for the elderly by the National Association of

State Units on Aging (NASUA) HECM preliminary evaluation released by HUD.

In 1993 Transamerica announces MORTGAGE LOANS product including

deferred annuity from MetLife Fannie Mae convenes roundtable on developing a

conventional MORTGAGE LOANS Capital Holding discontinues "Homearnings"

plan NCHEC prepares report on taxation of MORTGAGE LOANS transactions for

AARP Home Equity Partners (Irvine, CA) & Union Labor Life announce new

"Freedom" plan including optional immediate annuity from MetLife Wendover

convenes 2-day conference of HECM originators AARP sponsors community seminars

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in support of HECM program development in CA, LA, MI, & MS Fannie Mae initiates

series of information sessions for financial planners and elderlaw attorneys Andrus

Gerontology Center (USC) convenes national telecon- ference on MORTGAGE

LOANSs National Center for Home Equity Conversion (NCHEC) moves from

Marshall, MN to Apple Valley, MN At year's end, the HECM program is all states

except AK, SD, & TX); Unity Mortgage offers it in 25 states; Senior Income in 14

states; Directors Mortgage in 14 states; Amerifirst Mortgage in 9 states; ARCS

Mortgage in 6 states; & International Mortgage in 4 states. In the year 1994 Household

Senior Services offers "Ever Yours" creditline MORTGAGE LOANS in FL, GA, IL,

KY, MD, MI, OH, and VA Congress enacts "total loan cost rate" disclosure

requirement for all MORTGAGE LOANSs; Federal Reserve publishes proposed

regulations NCHEC prepares report on "Reversing Foreclosures" for AARP New York

rescinds mortgage tax on MORTGAGE LOANSs U. S. Court of Appeals barrier to

RM lending in Texas; Rep. Gonzales legislates statutory override of court decision CA

Public Employees Retirement System (CALPERS) initiates study of MORTGAGE

LOANS investment Transamerica introduces creditline plan and expands into NY, NJ,

PA, and CT At year's end, Unity Mortgage is offering the HECM in 42 states and

Director's Mortgage has merged with Norwest Mortgage .

In 1995 HUD releases "Evaluation of the Home Equity Conversion Mortgage

Insurance Demonstration" HUD releases first major revision of HECM handbook.HUD

approves direct endorsement processing of HECM loans NCHEC publishes Your New

Retirement Nest Egg: A Consumer Guide to the New Loans

Mortgages by Ken Scholen.AARP publishes 5th edition of "Home-Made Money" by

Ken Scholen; distribution tops 400,000 HECM program lapses at end of federal fiscal

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year AARP sponsors national conference on MORTGAGE LOANSs in MD on 11/14-

15 Fannie Mae announces "HomeKeeper" plan; media coverage includes front-page,

above-the-fold article in USA Today FHA Commissioner’s Award resented by Nicolas

Retsinas to Ken Scholen for his work on MORTGAGE LOANSs .

In 1996 HECM program re-authorized on January 26, 1996 Fannie Mae begins

lender training for "Home Keeper" NCHEC issues Second Edition of Your New

Retirement Nest Egg: A Consumer Guide to the New MORTGAGE LOANSs by Ken

Scholen, Hartford Life tests annuity complement to HECM and Fannie Mae

MORTGAGE LOANSs HUD initiates counselor training via satellite TV.

In 1997 AARP releases consumer videotapes written by Ken Scholen featuring

Scholen and Bronwyn Belling AARP sponsors HUD counselor training via satellite TV

featuring Belling and Scholen Referral fee scams denounced by AARP, HUD, Fannie

Mae Household Senior Services discontinues "Forever Yours" plan AARP announces

counselor support fund capitalized by HUD and Fannie Mae NCHEC initiates

"preferred" lender and counselor program and releases " MORTGAGE LOANS

Counselor" software Ibis Software (SF) releases " MORTGAGE LOANS Originator"

Texas approves referendum to permit RMs, but technical errors make impact uncertain,

problematic AARP sponsors national MORTGAGE LOANS leadership round- table

and conference National MORTGAGE LOANS Lenders Association (NRMLA)

organized by Jeffrey Taylor with Peter Bell as staff .

In 1998 NCHEC circulates discussion papers on "Strengthening Cost Disclosures

on MORTGAGE LOANSs" by Ken Scholen AARP releases "HECM Training-in-a-

Box" including videotapes, workbook, HECM handbook, and counseling manual

Fannie Mae conducts market research to identify MORTGAGE LOANS market

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segments NCHEC publishes " MORTGAGE LOANSs for Beginners: A Consumer

Guide to Every Homeowner’s Retirement Nest Egg”.NCHEC establishes

website.Transamerica HomeFirst (SF) discontinues originating its proprietary

"HouseMoney" loans and servicing new HECM and HomeKeeper loans Federal

Reserve clarifies inclusion of annuities in TALC disclosures .

In 1999 Neighborhood Reinvestment Corporation (NRC) provides HECM training

in cooperation with AARP Texas approves MORTGAGE LOANS lending in

statewide referendum but prohibits creditline choices preferred by most consumers

Fannie Mae announce new consumer protections in 5/22 lender letter NRMLA and

AARP support absolute limit on origination fees, refinancing reforms, and research on

a single national 203b limit AARP initiates test of HECM counseling by telephone and

develops MORTGAGE LOANS counselor exam in cooperation with HUD, Fannie

Mae, and NRMLA.In 2000 First national MORTGAGE LOANS counseling exam is

taken by 425 counselors in 43 statesNRC provides 2-day HECM training in Atlanta,

Minneapolis, Oakland, Tampa, New Orleans, and San Antonio AARP completes

"Model Specifications for Comparing MORTGAGE LOANSs;" Financial Freedom

and Fannie Mae agree to develop new software implementing the specifications

Congress approves absolute limit on origination fees, refinancing reforms, and research

on a single national 203b limit Fannie Mae discontinues "equity share" pricing option

AARP Foundation selects 30 HECM counselors to participate in HUD-supported pilot

"telecounseling" project Financial Freedom becomes largest MORTGAGE LOANS

originator via merger with Unity Mortgage.In 2001 AARP releases new 68-page

consumer guide, creates new MORTGAGE LOANS.

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The Benefits of a MORTGAGE LOANS

 Tax-free funds for as long as you live in your home

 No loan repayment for as long as you live in your home

 No income, medical or credit requirements

 Retain ownership of your home for life this is guaranteed as long as you

maintain your home, and pay insurance and real estate taxes

 Choose a cash flow plan tailored to your needs

 No restrictions on how you may use the funds

 A tax-advantaged way to pass on part of your estate today

The following are the guidelines given by RBI for Loans Mortgage:-

 Any house owner over 60 years of age is eligible for a MORTGAGE LOANS.

 The maximum loan is up to 60% of the value of residential property.

 The maximum period of property mortgage is 15 years with a bank .

 The borrower can opt for a monthly, quarterly, annual or lump sum payments at

any point, as per his discretion.

 The revaluation of the property has to be undertaken by the Bank once every 5

years.

 The amount received through MORTGAGE LOANS is considered as loan and

not income; hence the same will not attract any tax liability.

 MORTGAGE LOANS rates can be fixed or floating and hence will vary

according to market conditions depending on the interest rate regime chosen by

the borrower.

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2.2 THEORITICAL FRAMEWORK

MORTGAGE LOANS in the US

MORTGAGE LOANS was introduced in the US in the late 1980s. Since then,

the number of people pledging their property for MORTGAGE LOANS has been on

the rise. Take a look at the numbers.In 1990, there were just 157 people who had opted

for this product. In 2006, 59,781 people opted for MORTGAGE LOANS. The concept

in India is similar to the one in the US.To be eligible for MORTGAGE LOANS, you

should be at least 62 years old and own a property."In a MORTGAGE LOANS, you

borrow money using your home as collateral but there aren't any payments. The interest

that is charged is added to the balance owed. That means you owe more each month.

When you die or when the house is sold, the debt gets paid off," says Jeffrey D.

Voudrie, CFP, CEPP, president, Legacy Planning Group Inc.Once you pledge your

property for MORTGAGE LOANS, you will receive funds as long as you live in that

property. There are three main sources that home owners can tap in the US. One of

these is the federally insured Home Equity Conversion Mortgage, administered by the

Department of Housing and Urban Development.The majority of people opting for

MORTGAGE LOANS go for HECM as it offers the best interest rates and loan

amount. However, if they opt for government-insured MORTGAGE LOANSs, then

they will also have to pay a fee for Federal Housing Administration insurance that will

protect against the value of the home going below the loan amount.There are also

single-purpose MORTGAGE LOANSs, offered by state or local government agencies

for a specific reason and, lastly, proprietary MORTGAGE LOANSs offered by banks,

mortgage companies and other private lenders.People planning a property

MORTGAGE LOANS have to undergo a free mortgage counselling from an

22
independent government-approved "housing agency". MORTGAGE LOANSs offered

by other financial institutions also require individuals to undergo similar counselling.

"Seniors like this product because it allows them to stay in their homes and they are not

required to make monthly payments," says Voudrie. However, a concern among most

elders is the rising interest rates, which increases the cost of the loan.

Costs which are to be incurred while going for MORTGAGE LOANS

 Processing or origination costs: - These are the costs which covers

the bank’s operating expenses for making the loan .This cost can be

financed as a part of the total loan.

 Mortgage Insurance: - This is the insurance charges of the insurer

who guarantees that if the lender that is the banker goes out of

business for any reason, the borrower would continue to get his or

her payments. The insurer could also guarantee that the borrower

will never owe more than the value of his or her home when the loan

is finally repaid.

 Appraisal fee: - This fee is to be paid to an appraiser who fixes a

value on the borrower’s home which is to be mortgaged. An

appraiser must also make sure there are no major structural defects,

such as bad foundation, leaky roof, or termite damage. If the

appraiser uncovers property defects, you must hire a contractor to

complete the repairs. Once the repairs are completed, the same

appraiser is paid for a second visit to make sure the repairs have been

completed. The cost of the repair may be financed within the loan.

23
  Other fees which include credit report fee for verifying whether any

tax liabilities are there, title search fee, document preparation fee for

loan documents, mortgage recording fee, survey fee, etc.

Risks to RM Lenders

There are some risks faced by a MORTGAGE LOANS lender. These risks are at the

heart of the reluctance of lenders to get into MORTGAGE LOANS lending, in the

absence of public policy support. The principal and unique problem facing the lender is

that of predicting accumulated future loan balances under a MORTGAGE LOANS, at

the time of origination. The uniqueness is because MORTGAGE LOANS is a ‘rising

debt’ instrument. Since MORTGAGE LOANS is a non-recourse loan, the lender has

no access to other properties, if any, of the borrower. Even if the collateral property

appreciates in value, it might still be lower than the loan balance at the time of disposal

of the property. The following are the basic sources of this risk:-

Mortality Risks:-

This is the risk that a MORTGAGE LOANS borrower lives longer than anticipated.

The lender might get hit both ways he has to make annuity payments for a longer

period; and the eventual value realised might decline. However, this risk is usually

‘diversifiable’, if the MORTGAGE LOANS lender has a large pool of such borrowers.

Possibility of adverse selection is counterbalanced by the possibility that even

borrowers with poor health may be attracted by MORTGAGE LOANS’s credit line or

lump sum options. However, there is no literature on one possible source of systematic

risk. Since MORTGAGE LOANS is projected to substantially improve the monthly

income and/ or liquid funds of the MORTGAGE LOANS borrowers, would it not

24
itself result in a systematically higher life expectancy amongst them than otherwise,

now this is a big question.

Interest Rate Risks:-

Said that the typical MORTGAGE LOANS borrower is elderly and is looking for

predictable sources of income/ liquidity, MORTGAGE LOANS loans promise a fixed

monthly payment / lump sum / credit line entitlement. However, for the lender, this is a

long-term commitment with significant interest rate risks. While fixing the above, the

lender has to account for a risk premium and thus can offer only a conservative deal to

the borrower. This interest rate risk is not fully diversifiable within the MORTGAGE

LOANS portfolio. Most of the MORTGAGE LOANS loans accumulate interest on a

floating rate basis to minimize interest rate risks to the lender, like in SBI the interest

rates are revised for every 5 years. However, since there are no actual periodic interest

payments from the borrower, these can be realized only at the time of disposal of the

house, if at all.

Property Market Risk:-

This risk may be partly diversifiable by geographical diversification of RM loans.

However, property values may be a non-stationary time series. In this three risks may

be pointed out they are.

 RM can be considered as a package loan with a ‘crossover’ put option to the

borrower to sell his house at the accumulated value of the MORTGAGE LOANS

loan at the time of repayment which is uncertain. If this option can be valued, it can

be suitably priced and sold in the market. However, unlike in the case of traditional

mortgages, markets for resale, securitization and derivatives based on

MORTGAGE LOANSs are non-existent or non-competitive. Small market size and

25
 predominance of government backed MORTGAGE LOANS insurance may

dissuade potential entrants. This impedes the flow of funds to finance

MORTGAGE LOANS loans.

 For the lender, both the interest and any shared appreciation component added to

the loan balance are taxable as current income even though there is no cash inflow

 MORTGAGE LOANS loans found takers amongst lenders only after the

availability of default insurance. Even then, in most of the MORTGAGE LOANS

loans, interest accumulates at a floating rate linked to one-year treasury rates. A

fixed interest rate MORTGAGE LOANS carries an interest rate risk are higher

than a conventional coupon bond or regular mortgage. It could be especially high at

origination and continues to be higher throughout. The small initial investment

under an MORTGAGE LOANS is very deceptive. MORTGAGE LOANS creates

very large off-balance sheet liabilities, if market rates rise above the rate assumed

under MORTGAGE LOANS.

Moral Hazard Risk:-

Once an RM loan is taken, the homeowners may have no incentive to maintain the

house so as to preserve or enhance market value. This might be especially true when

the loan balance is more or less sure to cross the sale value. Since the benefit would

accrue mainly to the lenders and the cost borne by the homeowner, it is perhaps not

sensible to assume otherwise. They conclude that in a competitive market, the lenders

will respond by either reducing the loan amount or by charging a risk premium in

interest or both. The more important point is that some time during the tenure of a

MORTGAGE LOANS, an elderly borrower may simply be physically incapable of

maintaining the home as per loan requirements. Though the MORTGAGE LOANS

26
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.

Liquidity Risks:-

In MORTGAGE LOANS loans where the borrower draws down on his loan through a

credit line, there is a risk of sudden withdrawals.

Risk Mitigation

Risk mitigation is the key for the success of any financial product including

MORTGAGE LOANS. Some of the risk mitigation techniques which the providers that

is the banker can apply to reduce the risk on their books are as follow

• Proper eligibility criterions

The first mitigation of risk can be done at the time of providing loans. This can be done

through proper verification of the title of the property, age of the borrower; his/her

credit analysis etc. This reduces the risk of default by the borrower

• Variable interest rates loan as compared to fixed interest rate loan

To avoid interest rate risk, the lender can go for variable interest rates based on some

market benchmark like MIBOR. This will also reduce the risk of Pre-payment as the

borrower will not have interest arbitrage on prepayment of the loan

27
• Proper analysis of mortality trends

As the product has significant longevity risk, the lender can do a detailed mortality

trend analysis on a macro level and also in the market where it is operating.

• Geographical diversification

The lender can look at spreading the business across the country by promoting the

product in secondary and tertiary cities also so that the law of large numbers may work

properly and if the provider has a bad experience in one market; it can be compensated

with good experience in other cities

• Develop the product for lower age groups

The lender can develop home equity conversion mortgages for all households and not

just for elderly. This will significantly reduce loan to value ratio and that will take care

of many of the risks inherent in the product.

• Securitization

One of the most effective ways of mitigation risk is securitization It involves many

other financial players and thus it spreads the risk of default/prepayment to many other

participants.

• Repayment schedule

In the Repayment schedule, some default conditions or changes that affect the security

of the loan for the lender that can make MORTGAGE LOANSs payable should also be

added, like Declaration of bankruptcy, Donation or abandonment of the house,

Condemnation/ Sovereign Takeover of the property by a government agency, adding a

new owner to the home’s title, taking out new debt against the home etc.

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Forces affecting “ MORTGAGE LOANS”

Any financial product is affected by some forces. The following are forces that affect

this innovative financial product called “ MORTGAGE LOANS”.

1. Borrowers have to bear very high transaction costs. However, with the latest

program we can expect a declining trend in these costs due to growing

volumes, increased awareness and learning effects.

2. There is a definite risk of moral hazard in borrowers being responsible for

home maintenance and in ultimate home sale. Given the profile of a typical

borrower, there are serious questions on both incentives and ability. It is

impractical to enforce the foreclosure clause. Negative publicity, potential

litigation and likely judgments make it so.

3. Home equity is an important component of precautionary savings. If a

homeowner has drawn down on his equity through a MORTGAGE LOANS,

his ability to meet unforeseen health care costs or move into alternative housing

may be more limited. Those who become seriously ill but would like to

continue to stay at home may face a severe problem. If they have to be away

from home for long for convalescence, they may fail to maintain the home and

pay property taxes. Then, as per the conditions of the MORTGAGE LOANS,

the lender can foreclose the loan.

4. Many elderly households may be simply reluctant to take on debt, having spent

so much of their lifetime saving for their own house.

5. Real estate laws are state specific whereas regulations governing

MORTGAGE LOANS loans are national in character. If there is a conflict,

state laws will prevail unless pre-empted by federal law.

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 6. Laws in some states are not clear on the lien priority to be granted to

MORTGAGE LOANS over other secured creditors, in spite of specific

provisions in a MORTGAGE LOANS contract.

7. What happens if a household declares bankruptcy, having borrowed through a

MORTGAGE LOANS is a big question.

8. Uncertainty exists on taxation of the borrower. If MORTGAGE LOANS

annuities were considered taxable as income of the borrower, would accrued

interest on the loan be a tax-deductible expense is an issue.

9. The tax authorities may if classify an MORTGAGE LOANS as a sale of home

rather than a loan, given the high probability that the entire value may

ultimately accrue to the lender. If so, the borrower may suddenly find that he

has lost out on one-time exemptions on capital gains.

10. The lender has to account for accrued interest as income, without any

corresponding cash flow.

Indian Market Potential

India-specific Characteristics of Relevance to RM

 There are no universal old age social security related benefits. Only about 10%

of the active working populations are covered by formal schemes. This would

substantially enlarge the potential target market for RM.

 A much lower proportion of urban households, and by implication, less scope

for MORTGAGE LOANS.

 A much larger proportion of elders co-living with their family members of

subsequent generations and hence less scope for MORTGAGE LOANS.

30
  A possibly stronger hand over motive, reducing the scope for MORTGAGE

LOANS.

 A possibly higher real rate of appreciation of real estate and housing prices,

making MORTGAGE LOANS more attractive to the lender.

 Widespread under valuation of real estate properties to accommodate

transactions involving unaccounted money and evasion of taxes on property

and real estate transactions

 Complexity, variety and location specific variations in types of home

ownerships like Benami holdings that is Irrevocable power of attorney,

Leasehold, freehold, Land use conversion regulations, Floor space regulations,

rent, tenancy controls, Disposal of ancestral property.

 Absence of competitive suppliers for immediate life annuity products. This, in

turn, is a consequence of Lack of data on old age mortality rates, Lack of long-

term treasury securities for managing interest rate risks of annuity providers.

 India specific legal and taxation issues like License/ Permission required under

insurance/ banking regulation for offering MORTGAGE LOANS ,Income tax

treatment for MORTGAGE LOANS lender and borrower, Capital gains on

property, Reporting and provisioning by the lender as per banking/ insurance

regulation, Status of RM loan in case of insolvency.

Old Age Population

Though the Indian population is still comparatively ‘young’, India is also

‘ageing’. According to some demographic survey conducted for India indicated the

following outcomes.

 The number of elderly (>60 yrs) will increase to 113 million by 2016, 179

million by 2026, and 218 million by 2030. Their share in the total population is
31
 projected to be 8.9 % by 2016 and 13.3% by 2026. The dependency ratio is

projected to rise from 15% as of now to about 40% in the next four decades

 The percentage of >60 in the population of Tamil Nadu and Kerala will reach

about 15% by 2020 itself.

 Life expectancy at age 60, which is around 17 yrs now, will increase to around

20 by 2020

Sources of Income Support for the Elderly in India

As of 1994, the estimated percentage among the elderly, dependent on various sources

of income was as follows:

Source Men Women All elderly

Pensions/Rent 9-10% 5% 7-8%

Work 65% 15% 40%

Transfers 30% 72% 52%

Of which, from 22% 58% 40%

Children

In addition, as per a survey of the National Sample Survey Organization (NSSO) in

1994, less than 4% of the elderly lived alone. A 1995-96 National Sample Survey of the

elderly reported that about 5% of them lived alone, another 10% lived with their

spouses only and another 5% lived with relatives/ non-relatives, other than their own

children. In other words, co-residence with children and other relatives is predominant.

However, the following aspects are worrisome:

 The extent and adequacy of support, especially for widows

32
  Vulnerability of such support to shocks to family income

 As incomes and life expectancy rose in the now developed countries,

simultaneously there was a decline in co-residence rates and intergenerational

support. It may happen in India too

 Strains due to demographic trends seem inevitable: fewer children must support

parents for longer periods of time. In a recent survey covering 30 cities, 70% of

the respondents did not expect their children to take care of them after

retirement.

 Job related migration of youth within the country and emigration.

Potential Market Segments

Now let us see specification of the potential target segment for MORTGAGE LOANS.

Age Group

Above 58 years, assuming 58 is the typical retirement age. Older the individual, more

attractive will be MORTGAGE LOANS. Additional considerations will include the

minimum age specified for preferential treatment as ‘senior citizens’ in matters such as

income tax or the recently introduced Varishta Bima Yojana.

High House Equity

The current monthly annuity payout by LIC under its immediate annuity product

Jeevan Akshay is 844 Rs for a single premium payment of Rs 1 lakh, for a person aged

65. The annuity will be lower in case of joint life or annuity certain options. If we were

to use a minimum of Rs 5000 as the monthly annuity that makes MORTGAGE

LOANS a worthwhile activity, we need an RM loan of around Rs 6 lakhs. Assuming a

loan to home value ratio of 60%, this implies a current market value of Rs. 10 lakhs.

33
Low Current Incomes Relative to Desired Standard of Living

Amongst such households, we are looking for those whose current levels of income are

insufficient to afford their desired standard of living. The salary replacement rates

suggested in the literature, for maintaining the same standard of living after retirement

as before, is around 60%. This implies a pre-retirement take home salary or income

(after-tax) of around Rs 9000-10000 a month. A potential MORTGAGE LOANS

borrower would be one who had such a pre-retirement income but no substantial

pension benefits. Therefore, he would be employed in the private sector or self-

employed.

Long Tenure at Current Home

MORTGAGE LOANS is attractive to a borrower especially when he values continued

stay in his current residence and plans to do so for a long term into the future. This is

likely when he has already stayed in his current home for a relatively longer period- say

a minimum of 10 years. Additional indicators for such a desire could be a person

currently resident in one’s home town/ state.

Lack of Other Supports

If such an individual is living alone, as in the case of a widower or widow,

MORTGAGE LOANS can make a substantial contribution to his/ her standard of

living. Alternatively, the next generation may be living far away, either in India or

abroad.

No Significant Bequeath Motive

It can be said that there is a basic conflict between taking an MORTGAGE LOANS

loan and a desire to bequeath property to one’s heirs. If an elderly homeowner has no

children, this question may not arise. Otherwise, we need to look for attributes

34
indicating a weak bequeath motive. For example, in the Indian context, it could mean

‘no sons’. Or it could be that the entire next generation of the family has migrated to

another metro or abroad with no intention of coming back. They may be much better

off than the older generation and may not value bequests, if any.

Independence and Quality of Life

A potential MORTGAGE LOANS borrower must be an elderly person who values his

financial independence. He must be interested in maintaining his desired quality of life

rather than curtailing consumption for lack of current cash income. This implies he

must be mentally prepared to consider borrowing in old age, let alone through

innovative financial products like MORTGAGE LOANS. This implies certain

minimum education and exposure to financial savings/ assets/ markets.

Considerations in Product Design

Now let’s see what are the aspects which need to be focused for a product design likely

to be attractive from the perspective of a potential MORTGAGE LOANS customer

and a lender.

Customer Perspective:-

 Empathetic counseling from professionally competent and independent

counselors- NGOs like Help Age, Dignity Foundation, Indian Association of

Retired Persons (IARP) etc., may be interested in providing such services

 Ratio of MORTGAGE LOANS Loan limit to current market value of property:

This will be a function of borrower’s age, projected long term interest rates and

property appreciation rates.

 Flexibility in drawdown: The line of credit with interest credit for unutilised

portion is the most popular choice in the U.S context. The same might be true

35
 in India too. Cash may be withdrawn as and when needed, especially large

amounts to meet medical and other emergencies, in contrast to a regular

monthly amount. However this is vulnerable to myopic withdrawals or under

pressure from relatives.

 Minimum possible MORTGAGE LOANS closure costs.

 Clarity in borrower’s responsibility for property maintenance and paying

property taxes, insurance etc. Strong legal protection against foreclosure and/

or forcible eviction based on fine print may be desirable. Alternatively, the

MORTGAGE LOANS lender should be willing to take over such a

responsibility against deduction from MORTGAGE LOANS loan limit/

annuity.

 Clarity in tax treatment of MORTGAGE LOANS receipts, accrued interest,

capital gains etc.

 Option to refinance in case interest rates decline substantially

 Protection against lender defaults- though not very critical.

Lender Perspective:-

The major concern is with respect to the risks of longevity, interest rates and property

appreciation rates. There is no simple way to explore these except through financial

modelling. Some alternatives for limiting risks in the learning phase can be suggested

as below.

 Purchasing a life annuity through an insurance tie-up so that a part of the

mortality risk is transferred to the insurer with the necessary core competence.

Their expertise may also be used to decide on the lump sum MORTGAGE

LOANS loan.

36
  Based on the U.S experience so far, it seems better for the lender to assume

responsibility for property maintenance/ taxes against deduction from

MORTGAGE LOANS loan limits/ annuity payments.

 Though insurance against default risk is unlikely in India, an MORTGAGE

LOANS lender has to charge an equivalent additional interest spread of 2-

2.5%, if not more, as a default risk premium

 It seems worthwhile to explore and lobby for concessional refinance for

MORTGAGE LOANS loans from agencies like the National Housing Bank and

for lower MORTGAGE LOANS related transaction taxes.

 Given the requirement of property market related expertise at the micro-level, it

might be worthwhile to focus on only one or two cities in the initial phase.

 There might be a need for tie-ups with agencies for various services- property

valuation, title search, property maintenance and so on.

Myths about MORTGAGE LOANSs

The following are some of the myths about MORTGAGE LOANS in the minds of the

people which need to be clearly addressed in order to make this product more attractive

and popular.

 The lender will own the home

The applicant and his family will continues to retain ownership of the home. The

Lender does not take control of the title. The lender's interest is limited to the

outstanding loan balance.

 MORTGAGE LOANS lenders just want to sell your house

The lenders are in the business of helping to keep owners home and meet

whatever financial needs he may have in order to help him to maintain financial

37
 independence. MORTGAGE LOANS borrowers may remain in the home for as

long as they wish. However, should they decide to sell the home for any reason,

the loan would then become due and payable. \

 Owner’s heirs will be saddled with the loan

The MORTGAGE LOANS is a non-recourse loan. This means that the lender

can only derive repayment of the loan from the proceeds of the sale of the

property.

 Owner need a certain level of income, good credit, or good health to qualify

A MORTGAGE LOANS has no income, credit, or health requirements.

 Owner has to make monthly payments on his MORTGAGE LOANS

There are never any monthly payments. Payment of taxes, insurance and general

upkeep of the home are the only responsibilities of the homeowner.

 Home must be debt free to qualify for a MORTGAGE LOANS

Owner may have a mortgage or other debt on his home. The mortgage or debt

however, must be paid off first with the proceeds of the

 MORTGAGE LOANS.

 Only the "cash poor" or desperate senior citizens can benefit from the

38
 MORTGAGE LOANS

Even though some seniors may have a greater need than others for the cash or

monthly income, the MORTGAGE LOANS can also be an excellent financial

or estate planning tool.

 SWOT analysis on MORTGAGE LOANS loans

Under this scheme, any senior citizen owning unencumbered residential

property in India can mortgage such property for a loan, to tide over expenses in

their twilight years. Here's a SWOT analysis of the same.

Strengths

 The senior citizens are entitled to regular cash flows at their choice - monthly,

quarterly, half yearly and annually.

 The loan is given without any income criteria at an age where normal loans are

not available.

 No loan servicing or repayment required during the lifetime of borrower and

spouse.

 If the borrower dies during the period, the spouse will continue to get the loan

amount for 15 years.

 Tax treatment of a RML will be as loan, not income, so no tax will be payable

on the regular cash flows

 The borrower and their spouse can continue to stay in the house till both die.

 Heirs of the borrower will be entitled to get the surplus of sale value of the

property.

 Borrower/heir can get mortgage released by paying loan with interest without

having to sell property at any time.

39
 Reassessment of property value will be done periodically say once every 5

years.

Weaknesses

 This loan product has a maximum tenure of only 15 years. If the borrower

outlives this period, the regular cash flows will stop.

 Basis of property valuation is not clear.

 Requirement of clear title to property in the name of the borrower to get the

loan.

 Various fees to be added to borrower’s liability, which can be quite substantial.

Opportunities

 Partial substitute for a social security scheme for senior citizens.

 Increasing number of nuclear families.

 Medical expenses and cost of living going up, increasing the need for additional

income in old age.

 Most Indians have strong preference for own home. Therefore many eligible

citizens may opt for the scheme.

Threats

 Property valuations are ambiguous.

 There is a non-recourse guarantee, which means that loan plus interest should

never exceed realizable value of property. In case of fall in property value or

loan with interest exceeding assessed property value, banks may resort to

strong-arm tactics to force the borrowers to move out, if they live too long after

the loan period is over.

 Rate of interest is at the discretion of lender. Any increase in the rate, if floating,

will increase the burden of the borrower.

40
  Lender has discretion to raise loan amount on revaluation. However, if it does

not do so, borrower doesn't get loan according to proper value of property.

 Lender has right to foreclose loan by forcing sale of property if borrower doesn't

pay for insurance, property taxes or maintain and repair house.

The following factors are considered while determining the amount of loan.

 Age of the borrower and any co-applicant.

 The current value of the property and expected property appreciation rate.

 The current interest rate and interest rate volatility (interest rate risk).

 Closure and servicing costs.

 Specific features chosen like fixed or floating interest.

 Whether the payment is taken as lump sum, or monthly payments or quarterly

payment. Lump sum provides the cash immediately, but the interest fees are the

highest.

 The location of the property and whether the maximum loan amount is subject

to the maximum loan limits.

Steps to followed for getting a MORTGAGE LOANS

The following are the important steps which are to be followed by every person who is

going for MORTGAGE LOANS.

1. EDUCATION

The applicant must first educate himself about the MORTGAGE LOANS by

visiting this website; this will the beginning of loans home mortgage learning

process. Many banks nowadays send their representatives to the home of the

applicants to explain the benefits of a loans home mortgage to the homeowner

and family or friends. Any doubts regarding MORTGAGE LOANS may be

41
 cleared at that time. If the homeowner has already had HUD counseling OR is

ready to proceed with the process, an application is to be completed.

Government has developed some websites like HUD or AARP which can be

visited for details of MORTGAGE LOANS.

2. HUD COUNSELLING

Counseling by a HUD approved counselor is required. This can be taken as a

first step or after the application has been completed. HUD counseling can be

done via the telephone or at a fixed location. The HUD counselor will sign and

date a HUD Counseling Certificate at the conclusion of the meeting. The

borrower(s) then sign and date the HUD counseling certificate and give it to

their Loan Officer to start the loan process.

3. APPLICATION

The loan officer takes the application before or after HUD counseling. The loan

officer carefully explains the Loans home mortgage program features and

benefits. Some of the forms are Good Faith Estimate, Tax & Insurance

Disclosure, Loan application, Privacy Policy Disclosure. The loan officer will

collect copies of Drivers License or other form of Picture ID, Social Security Card

or Medicare Card, Most recent Property tax statement, Homeowners Fire Insurance

Policy, Most recent mortgage statement.

4. PROCESSING THE LOAN

When both the application and HUD counseling have been completed, you are

ready to start processing the loan. The next step is to order a HUD appraisal and

a termite inspection. If either report reveals things that require fixing, according

to HUD guidelines the borrower can fix these within six months after the close

42
 of escrow. If there are repairs required, a separate “Repair Set Aside” account is

created. Fire insurance is required. In some cases the current policy may be less

than the lender requires and therefore it is necessary to increase the insurance

policy to the current value.

5. CLOSING

When the loan documents are ready to be signed, the loan officer will schedule

a convenient time to come to the home of the applicant in some case with a

notary to go over the documents and sign and date the loan papers. If you

choose to have monthly payment, the funds are wired to your account on the

first day of every month. If you choose a credit line, the funds are wired within

five business days of receiving the request in writing.

6. AFTER CLOSING

You must continue to pay property taxes and insurance. You must also maintain

your home in good repair. Any repairs that are required must be done within six

months of the close date. Proof of required repairs must be sent to the Lender.

Termination of MORTGAGE LOANS Contract:-

The following are the cases where in the MORTGAGE LOANS contract may be

terminated that is terminating the contract of giving regular payouts to the borrower by

the bank before the tenure gets over:-

 The borrower has not stayed in the mortgaged property for a continuous period

of one year.

 The borrower fails to pay property taxes, home insurance or maintain and repair

the residential property.

 The residential mortgaged property is donated or abandoned by the borrower.

43
  The borrower makes changes in the residential property that affect the security

of the loan for the lender. For example, renting out a part or the entire house,

adding a new owner to the house's title, changing the house's zoning

classification, or creating further encumbrance on the property either by way

taking out new debt against the residential property or alienating the interest by

way of a gift or will.

 The government, under legal provisions, seeks to acquire the residential

property for public use.

 The government condemns the residential property.

MORTGAGE LOANS in SBI

The State Bank of India (SBI) has started offering MORTGAGE LOANS products for

senior citizen on October 12, 2007. Joint loans will be given if the spouse is alive and is

over 58 years of age. The loan is be offered by all branches of SBI from October 12,

2007. The loan is offered at an interest rate of 10.75% pa and is subject to change at the

end of every five years along with revaluation of security. Every five years, bank may

even re-adjust the loan installments, if it is needed, depending on market conditions and

loan status. In an press report The Chief General Manager for Personal Banking (SBI),

Mr. Sangeet Shukla told that there is no upper limit of amount of loan. Also, the

maximum period for availing this benefit is 15 years. Under this loan, borrowers can be

avail payment against the security of their houses on monthly or quarter installments or

either he/she can go for as a lump sum payment at the beginning. During their lifetime,

the borrower does not have to pay the loan and will continue to stay in their house.

Thereafter, either the legal heirs can repay the loan and redeem the property but if this

option is not exercised, bank will sell the property and liquidate the loan. Surplus, if

any, will be passed on to the legal heirs. DHFL and Punjab National Bank are the other

44
competitors along with the SBI. MORTGAGE LOANS is very popular product in

many countries. The scheme offers old persons with less income to offer their house as

mortgage security. The old person will get a loan from the bank and the bank will keep

on paying them for a fixed period. After the time of loan is over, the bank may either,

acquire the property and give the remainder to the customer’ heirs or they can pay back

and keep the property. The scheme is very good for some people looking for additional

money to support their needs at old age. MORTGAGE LOANS in SBI, main branch

Hyderabad:-

As MORTGAGE LOANS is offered by all the branches of SBI from October

12 2007, SBI main branch in Hyderabad also started providing the facility of

MORTGAGE LOANS. Due to lack of knowledge about MORTGAGE LOANS in

Hyderabad there are no any customers for this product in SBI main branch Hyderabad.

Recently one customer is willing to take MORTGAGE LOANS from SBI main

branch. This deal has not yet been finalized, it is in process.

The bank pays installments monthly, quarterly and even lump sum. The loan

amount is paid in installment for 10 years or for 15 years as per the requirement and

wish of the borrower.

The following is the table showing the installments on monthly, quarterly basis

for the period of 10 tears and 15 years for a loan amount of Rs 100000 at a interest rate

of 10.75%.

45
Loan Tenor 10 years 15 years

Monthly instalments 468 225

(Rs.)

Quarterly instalments 1,423 687

(Rs.)

Lump sum payment 36,022 21,619

(Rs.)

In SBI main branch recently one customer showed willingness to take up

MORTGAGE LOANS. As due to the privacy policy of the bank hence forth the name

of the customer will be taken as Mr. A. Mr. A is of 64 ages and owns a house with its

title. After the e valuation of the house, the value of the house is estimated to be Rs 10,

00,000. As per the SBI guidelines only the loan is given on 90% of the property value

so in this case Mr. A can take a loan of Rs 9,00,000 (that is 90% of 10,00,000). MR .A

wants to get the installment on monthly bases for a period of 15 years. So his monthly

installment for the period of 15 years for the loan amount is Rs 2,025.

Guidelines for “ MORTGAGE LOANS” in SBI

Objective of the scheme

To provide a source of additional income for senior citizens of India who own self-

acquired and self-occupied house property in India.

46
Eligibility

 No. of borrowers: - Single or jointly with spouse in case of a living spouse.

 Age of first borrower :- Above 60 years

 No. of surviving spouses on date of sanction of loan :- Should not be more than

one. Borrowers will have to give an undertaking that they will not remarry

during the currency of the loan. If the borrowers choose to remarry, the loan

will be foreclosed.

 Age of spouse :- Above 58 years

 Residence :-

a. Borrower should be staying at self-acquired and self owned house / flat

against which loan is being raised, as his permanent primary residence.

b. Mobile/Telephone/Credit Card bills/Certificate from the Housing Society

where the borrower is staying /Affidavit made before the Executive

Magistrate may be accepted as proof of residence.

c. Borrowers will be required to inform the Bank when they cease to use this

residence as their permanent residence.

 Title of the Property :-

a. Borrowers should have a clear and transferable title in their names

b. Title verification and search report for a period of 30 years will be

required to be obtained from the Bank’s empanelled advocate at

borrowers’ cost.

 Title of the property and number of borrowers.- In case if the title in single

name and loan number of borrowers. availed jointly with spouse. Title holder

should make a Will in favour of the other spouse. The Will should confirm that

47
 this is the last Will and that it supersedes all earlier wills, if any. The borrower

to undertake that no fresh Will shall be made during the currency of the loan

 Encumbrances: - The property should be free from any encumbrances. However

in case of property purchased by availing Home Loan from SBI and mortgaged

to SBI, it will be considered for RML, subject to closure of the Home Loan

account out of the proceeds of RML

 Residual Life of property: - Should be at least 20 years in case of single

borrower and 25 years in case of spouse being below 60 years of age. Certificate

from empanelled engineer/ architect will be required to be obtained for this

purpose, in addition to valuation of property.

Security

The MORTGAGE LOANS Loan shall be secured by way of equitable mortgage

of residential property.

Tenor

 Age of the younger of the borrowers between 58 and upto 68 years: 15

years

 Age of the younger of the borrowers above 68 years: 10 years

 OR till death of the borrower(s),

Whichever is earlier

Disbursement

By credit to an SB account in the joint names of the borrowers operated by E or S.

Periodicity of availing loan

 Monthly payment.

 Quarterly payment

 Lump sum payment

48
Quantum of loan

The loan amount would be 90% of the value of property. Loan amount would include

interest till maturity. The maximum loan amount is kept at Rs. 1 Crore and

minimum Rs.3 lac

Purpose of Loan

Supplementing income, any personal expenses, house repairs, etc. Loan amount should

not be used for speculative, trading and business purposes.

Repayment/Settlement

 The loan shall become due and payable only when the last surviving borrower dies

or opts to sell the home, or permanently moves out of the home for to an institution

or to relatives. Typically, a “permanent move” may generally mean that neither the

borrower nor any other co-borrower has lived in the house continuously for one

year or do not intend to live continuously. Bank may obtain such documentary

evidence as may be deemed appropriate for the purpose.

 Settlement of loan along with accumulated interest is to be met by the proceeds

received out of sale of residential property or prepayment by borrowers and his next

of kin.

 The borrower(s) or his/her/their legal heirs/estate shall be provided with the first

right to settle the loan along with accumulated interest, without sale of property.

 A reasonable amount of time, say up to 6 months, may be provided when RML

repayment is triggered, for house to be sold.

 The balance surplus (if any), remaining after settlement of the loan with accrued

interest and expenses, shall be passed on to the borrower or the estate of the

borrower/legal heirs.

49
 Borrowers will be required to submit annual life certificates in the month of

November every year. This certificate will also include clauses regarding marital

status, and permanent residence of the borrowers, in addition to the balance

confirmation as on 31st October of that year.

 List of legal heirs will be obtained at the time of sanction of loan. With a view to

avoiding disputes at the time of settlement of loan amount by legal heirs, specific

instructions about inheritance of the property and payment of balance amount, if

any, of the sale proceeds after settling the Bank’s dues , will be required to be part

of the borrowers’ Will.

Foreclosure

The loan shall be liable for foreclosure due to occurrence of the following events of

default.

 If the borrower(s) has/have not stayed in the property for a continuous period of

one year

 If the borrower(s) fail(s) to pay property taxes or maintain and repair the

residential property or fail(s) to keep the home insured, the Bank reserves the

right to insist on repayment of loan by bringing the residential property to sale

and utilizing the sale proceeds to meet the outstanding balance of principal and

interest.

 If borrower(s) declare himself/ herself/themselves bankrupt.

 If the residential property so mortgaged to the Bank is donated or abandoned by

the borrower(s).

 If the borrower(s) effect changes in the residential property that affect the

security of the loan for the lender.For example: renting out part or all of the

house by creating a tenancy right; adding a new owner to the house’s title;

50
 changing the house’s zoning classification; or creating further encumbrance on

the property either by way of taking out new debt against the residential

property or alienating the interest by way of a gift or will.

 Due to perpetration of fraud or misrepresentation by the borrower(s).

 If the Government under statutory provisions, seeks to acquire the residential

property for public use.

 If the Government condemns the residential property (for example, for health or

safety reasons).

 Any other event such as re-marriage of the borrower(s) etc. which shall have an

adverse impact on the loan settlement prospects.

 Borrowers do not accept the revised terms on revaluation of property and

interest reset at the end of every 5 years from sanction.

 Any violation of the terms and conditions of RML.

Pre-payment of loan

 The borrower(s) will have option to prepay the loan at any time during the loan

tenor.

 There will be no prepayment penalty.

Valuation/Revaluation of property and option for the Bank to adjust payments.

 After the initial valuation to determine the loan amount, subsequent

revaluations will be done at intervals of 5 years.

 The Bank shall have the option to revise the periodic/lump-sum amount every 5

years along with revaluation. In the scenario of fall in property prices, the Bank

may decide to revise the amount at any time earlier than 5 years. At every stage

of revision, it should be ensured that the Loan to Value ratio does not exceed

90% at maturity.

51
  If the Borrower does not accept the revised terms, no further payments will be

effected by the Bank.Interest at the rate agreed before the review will continue

to accrue on the outstanding amount of the loan. The accumulated principal and

interest shall become due and payable as mentioned in clauses 9 and 10.

Interest Rate

10.75% p.a. (Fixed) subject to reset every 5 years.

Processing fee

0.50% of the loan amount, minimum Rs. 500 and maximum of Rs. 10,000

Right of Rescission

As a customer-friendly gesture and in keeping with international best practices, after

the documents have been executed and loan transaction finalized, borrowers will have

right of rescission up to seven days to cancel the transaction. If the loan amount has

been disbursed, the entire loan amount will need to be repaid by the borrower within

this period. However, interest for the period may be waived. Processing fee shall not be

refunded in such cases.

Insurance and maintenance of house property

 The house property will be insured by the borrower at his cost against fire,

earthquake and other calamities.

 The borrower shall ensure to pay all taxes, charges etc.

 Bank reserves the right to pay insurance premium, taxes, charges etc. by

reducing the loan amount to that extent.

 The borrower shall maintain the property in good condition

52
Operational issues

 Type of facility: - Non-renewable Overdraft without ledger folio charges. No

cheque book/debit card will be linked to this account.

 Availability of product :- All branches

53
ARTICLES

ARTICLE: 1

TITLE: Housing / Mortgage Sector Over The Next Several Years.

AUTHOR: JOSHNU,

YEAR: (2001)

ABSTRACT:

studied the prospects of the U.S. housing / mortgage sector over the next several years.

Based on his analysis, he believes that, there are elements in place for the housing

sector to continue to experience growth well above GDP. However, he believes that

there are risks that can materially distort the growth prospects of the sector.

Specifically, it appears that a large portion of the housing sector’s growth in the 1990’s

came from the easing of the credit underwriting process.

54
ARTICLE: 2

TITLE: Public Investment In And Promotion Of Homeownership And The Home

Mortgage Market.

AUTHOR: MELISSA

YEAR: (2002)

ABSTRACT:

concluded that public investment in and promotion of homeownership and the home

mortgage market often relies on three justifications to supplement shelter goals: to build

household wealth and economic self-sufficiency, to generate positive social,

psychological states, and to develop stable neighborhoods and communities. Home

ownership and mortgage obligations do not inherently further these objectives, however

and sometimes undermine them. The most visible triggers of the recent surge in

subprime delinquency have produced calls for emergency foreclosure avoidance

interventions (as well as front-end regulatory fixes). Whatever their merit, she contend

that a system of mortgage delinquency management should be an enduring component

of housing policy. Furtherance of housing and household policy objectives hinges in

part. On the conditions under which homeownership is obtained, maintained, leveraged,

and in some situations exited. Given that high leverage or trigger events such as job

loss and medical problems play significant roles in mortgage delinquency independent

of loan terms, better origination practices cannot eliminate the need for delinquency

management. In terms of analyzing this framework, it is tempting to focus on its impact

on mortgage credit cost and access or on the absolute number of homes temporarily

saved, but her proposed analysis is based on whether the system honors and furthers the

goals of wealth building, positive social psychological states, and community

development.

55
ARTICLE: 3

TITLE: Global Financial Crisis Has Had Destructive Impacts.

AUTHOR: Yener Coskun,

YEAR: (2011)

ABSTRACT:

it been observed that the global financial crisis has had destructive impacts for both

developed and developing countries. In this context, it seemed that Turkey is positively

decoupling from other countries due to a limited negative impact of the global financial

crisis on its financial and real estate markets. In this article, we consider, from the

perspective of national mortgage markets, whether there is a success story for Turkey;

does the picture imply a different story other than the successful crisis management?

The paper is organized in four sections. The next two sections are dedicated to the

analysis of the importance of the real estate and housing market for the Turkish

economy. In sections four and five, we analyze the impacts of global financial crisis on

the Turkish economy and also on the housing sector specifically. The last section is

reserved for concluding remarks.

56
ARTICLE: 4

TITLE: Supply Is Much Less Than The Housing Demands.

AUTHOR: CHAUHAN AND SHAH,

YEAR: (2010)

ABSTRACT:

found that housing shortage in India is increasing rapidly, mainly because supply is

much less than the housing demands. In urban area, the problem is more complex and

complicated as the pressure for houses and services due to both natural increase and

migration. The most important resources required to purchase House is finance.

Housing plays an important role in a country’s economy, typically accounting for 10 to

20 per cent of total economic activity. In this present paper investigations have been

made on all the Housing finance Institutes in India and their mechanism in system.

57
ARTICLE: 5

TITLE: Business Of Housing Finance In India.

AUTHOR: BHALLA et al.,

YEAR: (2010)

ABSTRACT:

showed that the main business of housing finance in India is concentrated around a few

players like banks and major housing finance companies. The HH Index as an indicator

of market concentration shows increasing trend both on the basis of market share of

individual players in disbursement of loans as well as on assets base. It shows

decreasing competitive ability of small players. Small housing finance companies are

losing the battle to the bigger players. Small players in the sector are facing threat from

the banks to capture their share because of their wider network and reach. Growing

concentration of major share of housing loans disbursements in the hands of larger

banks and giant housing finance companies has forced the small housing finance

institutions to identify the challenging areas in this field to capture the future market

and ensure their remarkable place. Another aspect regarding the competitive dynamics

in housing finance is that the indicators showing HFCs and other players as luring

customers to get housing finance are not mainly because of the stiff competition but

because of the need to change the attitude of the Indian people towards the

phenomenon of loan and to bring them into the formal system of housing finance.

58
3.1 INDUSTRY PROFILE

A bank is a financial institution that accepts deposits and channels those deposits into
lending activities. Banks primarily provide financial services to customers while
enriching investors. Government restrictions on financial activities by banks vary over
time and location. Banks are important players in financial markets and offer services
such as investment funds and loans. In some countries such as Germany, banks have
historically owned major stakes in industrial corporations while in other countries such
as the United States banks are prohibited from owning non-financial companies. In
Japan, banks are usually the nexus of a cross-share holding entity known as the
keiretsu. In France, bancassurance is prevalent, as most banks offer insurance services
(and now real estate services) to their clients.

Introduction

India’s banking sector is constantly growing. Since the turn of the century, there has
been a noticeable upsurge in transactions through ATMs, and also internet and mobile
banking.
Following the passing of the Banking Laws (Amendment) Bill by the Indian Parliament
in 2012, the landscape of the banking industry began to change. The bill allows the
Reserve Bank of India (RBI) to make final guidelines on issuing new licenses, which
could lead to a bigger number of banks in the country. Some banks have already
received licences from the government, and the RBI's new norms will provide
incentives to banks to spot bad loans and take requisite action to keep rogue borrowers
in check.
Over the next decade, the banking sector is projected to create up to two million new
jobs, driven by the efforts of the RBI and the Government of India to integrate financial
services into rural areas. Also, the traditional way of operations will slowly give way to
modern technology.

59
Market size

Total banking assets in India touched US$ 1.8 trillion in FY13 and are anticipated to
cross US$ 28.5 trillion in FY25.
Bank deposits have grown at a compound annual growth rate (CAGR) of 21.2 per cent
over FY06–13. Total deposits in FY13 were US$ 1,274.3 billion.
Total banking sector credit is anticipated to grow at a CAGR of 19.1 per cent (in terms
of INR) to reach US$ 2.4 trillion by 2021.
In FY14, private sector lenders witnessed discernable growth in credit cards and
personal loan businesses. ICICI Bank witnessed 141.6 per cent growth in personal loan
disbursement in FY14, as per a report by Emkay Global Financial Services. Axis
Bank's personal loan business also rose 49.8 per cent and its credit card business
expanded by 31.1 per cent.

Investments

Bengaluru-based software services exporter Mphasis Ltd has bagged a five-year

contract from Punjab National Bank (PNB) to set up the bank’s contact centres in
Mangalore and Noida (UP). Mphasis will provide support for all banking products and
services, including deposits operations, lending services, banking processes, internet
banking, and account and card-related services. The company will also offer services in
multiple languages.
Microfinance companies have committed to setting up at least 30 million bank accounts
within a year through tie-ups with banks, as part of the Indian government’s financial
inclusion plan. The commitment was made at a meeting of representatives of 25 large
microfinance companies and banks and government representatives, which included
financial services secretary Mr GS Sandhu.
Export-Import Bank of India (Exim Bank) will increase its focus on supporting project
exports from India to South Asia, Africa and Latin America, as per Mr Yaduvendra
Mathur, Chairman and MD, Exim Bank. The bank has moved up the value chain by
supporting project exports so that India earns foreign exchange. In 2012–13, Exim
Bank lent support to 85 project export contracts worth Rs 24,255 crore (US$ 3.96
billion) secured by 47 companies in 23 countries.

60
Government Initiatives

The RBI has given banks greater flexibility to refinance current long-gestation project
loans worth Rs 1,000 crore (US$ 183.42 million) and more, and has allowed partial
buyout of such loans by other financial institutions as standard practice. The earlier
stipulation was that buyers should purchase at least 50 per cent of the loan from the
existing banks. Now, they get as low as 25 per cent of the loan value and the loan will
still be treated as ‘standard’.
The RBI has also relaxed norms for mortgage guarantee companies (MGC) enabling
these firms to use contingency reserves to cover for the losses suffered by the mortgage
guarantee holders, without the approval of the apex bank. However, such a measure can
only be initiated if there is no single option left to recoup the losses.
SBI is planning to launch a contact-less or tap-and-go card facility to make payments in
India. Contact-less payment is a technology that has been adopted in several countries,
including Australia, Canada and the UK, where customers can simply tap or wave their
card over a reader at a point-of-sale terminal, which reads the card and allows
transactions.
SBI and its five associate banks also plan to empower account holders at the bottom of
the social pyramid with a customer call facility. The proposed facility will help
customers get an update on available balance, last five transactions and cheque book
request on their mobile phones.

Road Ahead

India is yet to tap into the potential of mobile banking and digital financial services.
Forty-seven per cent of the populace have bank accounts, of which half lie dormant due
to reliance on cash transactions, as per a report. Still, the industry holds a lot of
promise.
India's banking sector could become the fifth largest banking sector in the world by
2020 and the third largest by 2025. These days, Indian banks are turning their focus to
servicing clients and enhancing their technology infrastructure, which can help improve
customer experience as well as give banks a competitive edge.
Exchange Rate Used: INR 1 = US$ 0.0183 as on October 28, 2014

61
The level of government regulation of the banking industry varies widely, with
countries such as Iceland, having relatively light regulation of the banking sector, and
countries such as China having a wide variety of regulations but no systematic process
that can be followed typical of a communist system.

The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena,
Italy, which has been operating continuously since 1472.

62
3.2 COMPANY PROFILE

State Bank of India (SBI) is an Indian multinational public sector bank and financial

services statutory body headquartered in Mumbai, Maharashtra. SBI is the 43rd largest

bank in the world and ranked 221st in the Fortune Global 500 list of the world's biggest

corporations of 2020, being the only Indian bank on the list. [6] It is a public sector

bank and the largest bank in India with a 23% market share by assets and a 25% share

of the total loan and deposits market.[7] It is also the fifth largest employer in India with

nearly 250,000 employees.[8][9][10]

The bank descends from the Bank of Calcutta, founded in 1806 via the Imperial Bank

of India, making it the oldest commercial bank in the Indian Subcontinent. The Bank of

Madras merged into the other two presidency banks in British India, the Bank of

Calcutta and the Bank of Bombay, to form the Imperial Bank of India, which in turn

became the State Bank of India in 1955.[11] Overall the bank has been formed from

the merger and acquisition of nearly twenty banks over the course of its 200 year

history.[12][13] The Government of India took control of the Imperial Bank of India in

1955, with Reserve Bank of India (India's central bank) taking a 60% stake, renaming it

State Bank of India.

History

Stamp dedicated to the State Bank of India in 2005

63
Share of the Bank of Bengal, issued 13 May 1876

Seal of Imperial Bank of India

The roots of State Bank of India lie in the first decade of the 19th century when

the Bank of Calcutta later renamed the Bank of Bengal, was established on 2 June

1806. The Bank of Bengal was one of three Presidency banks, the other two being

the Bank of Bombay (incorporated on 15 April 1840) and the Bank of

Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated

as joint stock companies and were the result of royal charters. These three banks

received the exclusive right to issue paper currency till 1861 when, with the Paper

Currency Act, the right was taken over by the Government of India. The Presidency

banks amalgamated on 27 January 1921, and the re-organised banking entity took as its

name Imperial Bank of India. The Imperial Bank of India remained a joint-stock

company but without Government participation.

Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of

India, which is India's central bank, acquired a controlling interest in the Imperial Bank

64
of India. On 1 July 1955, the Imperial Bank of India became the State Bank of India. In

2008, the Government of India acquired the Reserve Bank of India's stake in SBI so as

to remove any conflict of interest because the RBI is the country's banking regulatory

authority.

In 1959, the government passed the State Bank of India (Subsidiary Banks) Act. This

made eight banks that had belonged to princely states into subsidiaries of SBI. This was

at the time of the First Five Year Plan, which prioritised the development of rural India.

The government integrated these banks into the State Bank of India system to expand

its rural outreach. In 1963 SBI merged State Bank of Jaipur (est. 1943) and State Bank

of Bikaner (est.1944).

SBI has acquired local banks in rescues. The first was the Bank of Bihar (est. 1911),

which SBI acquired in 1969, together with its 28 branches. The next year SBI acquired

National Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975,

SBI acquired Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior

State, under the patronage of Maharaja Madho Rao Scindia. The bank had been

the Dukan Pichadi, a small moneylender, owned by the Maharaja. The new bank's first

manager was Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank of Cochin

in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank

of Travancore, already had an extensive network in Kerala.

65
State Bank of India logo was designed by NID in 1971

National Institute of Design, Ahmedabad designed the SBI logo in 1971. [14]

There was, even before it actually happened, a proposal to merge all the associate banks

into SBI to create a single very large bank and streamline operations. [15]

The first step towards unification occurred on 13 August 2008 when State Bank of

Saurashtra merged with SBI, reducing the number of associate state banks from seven

to six. On 19 June 2009, the SBI board approved the absorption of State Bank of

Indore, in which SBI held 98.3%. (Individuals who held the shares prior to its takeover

by the government held the balance of 1.7%.)[16]

The acquisition of State Bank of Indore added 470 branches to SBI's existing network

of branches. Also, following the acquisition, SBI's total assets approached ₹10 trillion.

The total assets of SBI and the State Bank of Indore were ₹9,981,190 million as of

March 2009. The process of merging of State Bank of Indore was completed by April

2010, and the SBIndore branches started functioning as SBI branches on 26 August

2010.[17]

On 7 October 2013, Arundhati Bhattacharya became the first woman to be appointed

Chairperson of the bank.[18] Mrs. Bhattacharya received an extension of two years of

service to merge into SBI the five remaining associate banks.

66
Subsidiaries

SBI provides a range of banking products through its network of branches in India and

overseas, including products aimed at non-resident Indians (NRIs). SBI has 16 regional

hubs and 57 zonal offices that are located at important cities throughout India.

Domestic

Samriddhi Bhavan, Kolkata

SBI has over 24000 branches in India.[19] In the financial year 2012–13, its revenue

was ₹2.005 trillion (US$26 billion), out of which domestic operations contributed to

95.35% of revenue. Similarly, domestic operations contributed to 88.37% of total

profits for the same financial year.

Under the Pradhan Mantri Jan Dhan Yojana of financial inclusion launched by

Government in August 2014, SBI held 11,300 camps and opened over 3 million

accounts by September, which included 2.1 million accounts in rural areas and 1.57

million accounts in urban areas.

67
International

As of 2014–15, the bank had 191 overseas offices spread over 36 countries having the

largest presence in foreign markets among Indian banks.

 SBI Australia

 SBI Bangladesh

 SBI Bahrain

 SBI Botswana

The SBI Botswana subsidiary was registered on the 27th January 2006 and was issued a

banking licence by the Bank of Botswana on the 29th July 2013. The subsidiary handed

over its banking licence and closed its operations in the country. [25]

 SBI Canada Bank[26] was incorporated in 1982 as a subsidiary of the State Bank of

India. SBI Canada Bank is a Schedule II Canadian Bank listed under the Bank Act

and is a member of Canada Deposit Insurance Corporation.

 SBI China

 SBI (Mauritius) Ltd SBI established an offshore bank in 1989, State Bank of India

International (Mauritius) Ltd. This then amalgamated with The Indian Ocean

International Bank (which had been doing retail banking in Mauritius since 1979)

to form SBI (Mauritius) Ltd. Today, SBI (Mauritius) Ltd has 14 branches – 13

retail branches and 1 global business branch at Ebene in Mauritius.

68
 Nepal SBI Bank Limited

Main article: Nepal SBI Bank Limited

In Nepal, SBI owns 55% of share. (The state-owned Employees Provident Fund of

Nepal owns 15% and the general public owns the remaining 30%.) Nepal SBI Bank

Limited has branches throughout the country.

 SBI Sri Lanka[29] now has three branches located in Colombo, Kandy and Jaffna.

The Jaffna branch was opened on 9 September 2013. SBI Sri Lanka is the oldest

bank in Sri Lanka; it was founded in 1864.

In Nigeria, SBI operates as INMB Bank. This bank began in 1981 as the Indo–Nigerian

Merchant Bank and received permission in 2002 to commence retail banking. It now

has five branches in Nigeria.

In Moscow, SBI owns 60% of Commercial Bank of India, with Canara Bank owning

the rest. In Indonesia, it owns 76% of PT Bank Indo Monex. State Bank of India

already has a branch in Shanghai and plans to open one in Tianjin.

In Kenya, State Bank of India owns 76% of Giro Commercial Bank, which it acquired

for US$8 million in October 2005.

SBI South Korea In January 2016, SBI opened its first branch in Seoul, South Korea.

SBI South Africa

SBI UK Ltd

69
State Bank of India branch at Southall, United Kingdom

SBI USA In 1982, the bank established a subsidiary, State Bank of India, which now

has ten branches—nine branches in the state of California and one in Washington, D.C.

The 10th branch was opened in Fremont, California on 28 March 2011. The other eight

branches in California are located in Los Angeles, Artesia, San Jose, Canoga Park,

Fresno, San Diego, Tustin and Bakersfield.

Former Associate Banks

Main Branch of SBI in Mumbai

SBI acquired the control of seven banks in 1960. They were the seven regional banks of

former Indian princely states. They were renamed, prefixing them with 'State Bank of'.

These seven banks were State Bank of Bikaner and Jaipur (SBBJ), State Bank of

Hyderabad (SBH), State Bank of Indore (SBN), State Bank of Mysore (SBM), State

Bank of Patiala (SBP), State Bank of Saurashtra (SBS) and State Bank of

Travancore (SBT). All these banks were given the same logo as the parent bank, SBI.

State Bank of India and all its associate banks used the same blue Keyhole logo said to

70
have been inspired by Ahmedabad's Kankaria Lake.[33] The State Bank of

India wordmark usually had one standard typeface, but also utilised other typefaces.

The wordmark now has the keyhole logo followed by "SBI".

The plans for making SBI a single very large bank by merging the associate banks

started in 2008, and in September the same year, SBS merged with SBI. The very next

year, State Bank of Indore (SBN) also merged.

Following a merger process,[34][35] the merger of the 5 remaining associate banks,

(viz. State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of

Mysore, State Bank of Patiala, State Bank of Travancore); and the Bharatiya Mahila

Bank) with the SBI was given an in-principle approval by the Union Cabinet on 15

June 2016.[36] This came a month after the SBI board had, on 17 May 2016, cleared a

proposal to merge its five associate banks and Bharatiya Mahila Bank with itself.

On 15 February 2017, the Union Cabinet approved the merger of five associate banks

with SBI.[38] An analyst foresaw an initial negative impact as a result of different

pension liability provisions and accounting policies for bad loans.[39][40] The merger

went into effect from 1 April 2017.

State Bank of India Mumbai LHO

Non-banking subsidiaries

Apart from five of its associate banks (merged with SBI since 1 April 2017), SBI's non-

banking subsidiaries include:

71
 SBI Capital Markets Ltd

 SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)

 SBI Life Insurance Company Limited

 SBI Mutual Fund

In March 2001, SBI (with 74% of the total capital), joined with BNP Paribas (with 26%

of the remaining capital), to form a joint venture life insurance company named SBI

Life Insurance company Ltd.

Other SBI service points

As of 31 March 2017, the SBI group had 59,291 ATMs.[42] Since November 2017, SBI

also offers an integrated digital banking platform named YONO.

Yes Bank Investment

State Bank of India acquired 48.2% of the shares of Yes Bank as part of RBI directed

rescue deal in March 2020.

Listings and shareholding

As on 31 March 2017, Government of India held around 61.23% equity shares in SBI.

The Life Insurance Corporation of India, itself state-owned, is the largest non-promoter

shareholder in the company with 8.82% shareholding.

Shareholders Shareholding

Promoters: Government of India 56.92%

72
FIIs/GDRs/OCBs/NRIs 10.94%

Banks & Insurance Companies 10.63%

Mutual Funds & UTI 13.72%

Others 07.79%

Total 100.0%

The equity shares of SBI are listed on the Bombay Stock Exchange,[44] where it is a

constituent of the BSE SENSEX index,[45] and the National Stock Exchange of

India,[46] where it is a constituent of the CNX Nifty.[47] Its Global Depository

Receipts (GDRs) are listed on the London Stock Exchange.

Employees

State Bank Institute of Credit and Risk Management, Gurugram

SBI is one of the largest employers in the world with 245,652 employees as on 31

March 2021. Out of the total workforce, the representation of women employees is

73
nearly 26%. The percentage of Officers, Associates and Subordinate staffs was 44.28%,

41.03% and 14.69% respectively on the same date. Each employee contributed a net

profit of ₹828,350 (US$11,000) during FY 2020–21.

74
4.1 DATA ANALYSIS AND INTERPRETATION

Feasibility study

Feasibility study is the likelihood study. It is the way to determine if a business idea is

capable of being achieved. The results which we get out of this study are used to make

a decision whether to proceed with the project or no. I took out the feasibility study to

see the likelihood of MORTGAGE LOANS offered by SBI.I limited my study only to

SBI main Branch, Hyderabad. In order to do the feasibility study of MORTGAGE

LOANS for SBI main branch I contacted and surveyed 30 respondents. I prepared a

questionnaire in which I asked the respondents details about their house, whether they

get any pension, whether they are in need of any financial assistance, their knowledge

about MORTGAGE LOANS and whether they are willing to go for MORTGAGE

LOANS or no.

So by this feasibility study we can come to know how many people are need

financial assistance, how many people have some knowledge and how many people are

willing to go for MORTGAGE LOANS.

75
Market Value

TABLE NO. 4.1

Market Value

Cumulative
Frequency Percent Valid Percent Percent
Valid Rs200000-500000 8 26.7 26.7 26.7
Rs500000-1000000 17 56.7 56.7 83.3
Above Rs1000000 5 16.7 16.7 100.0
Total 30 100.0 100.0

FIGURE NO. 4.1

Market Value

Above Rs1000000

Rs200000-500000

Rs500000-1000000

Interpretation:

In the sample size of 30 people, 8 people had house whose market value was between

Rs 200000 to Rs 500000, 17 people had house whose market value was between Rs

500000 to Rs 100000 and 5 people had house whose market value was above Rs

1000000.

Pension

76
TABLE 4.2

Pension

Cumulative
Frequency Percent Valid Percent Percent
Valid Yes 22 73.3 73.3 73.3
No 8 26.7 26.7 100.0
Total 30 100.0 100.0

FIGURE 4.2

Pension
No

Yes

Interpretation:

In the sample size of 30 respondents 22 people said they get pension and remaining 8

people said they did not get any kind of pension. So by seeing the above chart we can

make a inference that in the sample size of 30 respondents maximum people get

pension.

77
Financial Assistance

TABLE 4.3

Financial Assistance

Cumulative
Frequency Percent Valid Percent Percent
Valid Yes 22 73.3 73.3 73.3
No 8 26.7 26.7 100.0
Total 30 100.0 100.0

FIGURE 4.3

Financial Assistance
No

Yes

Interpretation:

Financial assistance refers to whether the respondent is in need of money for his daily

needs. Here out of 30 respondents 73.3% of the people needed financial assistance for

their expenses and remaining 26.7% people did not need any kind of financial

assistance for their daily expenses.

78
Knowledge about MORTGAGE LOANS

TABLE 4.4

Knowledge about Reverse Mortgage

Cumulative
Frequency Percent Valid Percent Percent
Valid Yes 12 40.0 40.0 40.0
No 18 60.0 60.0 100.0
Total 30 100.0 100.0

FIGURE 4.4

Knowledge about Reverse Mortgage

Yes

No

Interpretation:

Here knowledge about MORTGAGE LOANS refers to how many people are aware

about the concept of MORTGAGE LOANS. So according to my survey of 30

respondents only 40% that is 12 respondents had a basic idea about MORTGAGE

LOANS and the remaining 60% that is 18 people did not had any kind of knowledge

about MORTGAGE LOANS. So by this we can say that many people don’t have a

basic idea about MORTGAGE LOANS and the bank need to focus on spreading the

concept of MORTGAGE LOANS.

79
Willingness for MORTGAGE LOANS

TABLE 4.5

Willingness for Reverse Mortgage

Cumulative
Frequency Percent Valid Percent Percent
Valid Yes 7 23.3 23.3 23.3
No 23 76.7 76.7 100.0
Total 30 100.0 100.0

FIGURE 4.5

Willingness for Reverse Mortgage

Yes

No

Interpretation:

As before we saw that only 40% of the respondents had some basic knowledge about

MORTGAGE LOANS and after providing the knowledge about MORTGAGE

LOANS only 7 respondents were willing to go for MORTGAGE LOANS. From the

above chart we can say that maximum people feel it is not worthwhile to go for

MORTGAGE LOANS.

80
5.1 FINDINGS

• An attractive option to the elderly to finance their consumption needs on their

own.

• The loan is given without any income, medical or credit requirements criteria.

• Encourage more people in the working population to increase the proportion of

their savings invested in housing.

• MORTGAGE LOANS lender in the Indian market must proceed with caution.

• The actual size of the MORTGAGE LOANS markets is nowhere near its

estimated potential.

• Out of 30 respondents only 40% had some basic knowledge about

MORTGAGE LOANS.

• 7 people were willing to go for MORTGAGE LOANS out of 30 respondents.

81
5.2 SUGGESTIONS:-

 Educate people about MORTGAGE LOANS: - As by the survey I have found

out that only 40% of the respondents have some basic idea about MORTGAGE

LOANS, so by this it can be said that people are not educated about

MORTGAGE LOANS. So I would suggest the bank to educate the people about

MORTGAGE LOANS through advertisements, conducting workshops and

lectures on MORTGAGE LOANS etc.

 Take responsibility for the expenses incurred by the borrower on property

valuation etc: - As it is necessary that the person going for MORTGAGE

LOANS should make valuation of his property first, these valuation expenses

are incurred by the applicant himself. During my survey some respondents said

that, as they are aged it is very difficult for them arrange money for property

valuation and for this reason they think going for MORTGAGE LOANS is not

attractive. So I would suggest bank to take responsibility of the expenses

incurred by the borrower on property by including it in the total value so that

many people go for it.

 Proper eligibility criterions: - In some cases there is a risk of default by the

borrower; this risk can be avoided at the time of providing loans. So in order to

avoid the risk I would suggest the bank to do proper verification of the title of

the property, age of the borrower; his/her credit analysis etc. This reduces the

risk of default by the borrower

 Geographical diversification.:- The bank can look at spreading the business

across the country by promoting the product in secondary and tertiary cities.

82
5.3 LIMITATIONS

• 1. The survey was confined to only certain parts of twin cities, which

• Included walk-in customers of SBI BANK and outsiders.

• 2. We don’t have sufficient knowledge to close all the deals.

• 3. Getting the prospective customers are very time consuming.

• 4. Time to explain the customer about the product inside branch is less.

• 5. Time Period of my OJT is one of the Limitation.

83
5.4 CONCLUSION:-

For the purpose of feasibility study I conducted a survey of 30 respondents. These 30

respondents were selected on the basis of certain criteria .The first criteria for selecting

the respondents was the age of the respondents should be more than 60 and the second

one is that he should own a house with its title. After conducting the survey of 30

peoples, 73.3% of the respondents needed some kind of financial assistance, 40% of the

respondents had some basic knowledge about MORTGAGE LOANS, but after giving

the details about MORTGAGE LOANS to all the 30 people only 7 people were willing

to go for MORTGAGE LOANS. By the outcomes this study it can be said that this

was not the right time for introducing the concept of MORTGAGE LOANS by SBI.I

have also found out that even if the people need some financial assistance they are not

willing to go for MORTGAGE LOANS the reasons may be that the house is only

important assets, the elder people would like to transfer their house to their legal heirs.

As we can see in India joint families are more the elder people don’t like to sell their

house they would like to live in the same house and would like to transfer the house to

their legal heirs. So it can be concluded that introdusing MORTGAGE LOANS at this

time was not feasible but it may work very well in future.

84
BIBLIOGRAPHY:-

1.Websites

www.sbi.co.in

www.google.co.in (Google search engine).

www.wikipedia.com

http://www.investopedia.com/

www.India bulls Mortgage loan limited.com

www.essortment.com

2.Books

• H., Smadi, S.M., and Katircioglu, S T (2005) “National banking and Economic

Development”, Vora& Co. Publications Pvt. Ltd. Bombay Gangadhar (2097).

• Service Management and Marketing: A Customer Relationship Management

Approach, (2nd Edition). West Sussex: John Wiley & Sons, Ltd. Gronroos, C. (2000).

• Banking Theory And Practice : Dr. P.K Srivastava

• Banking And Financial Systems: G.Satyanarayana

• Annual Reports Of Axis Bank

• Market Research - Tull and Hawkins

• Customer Service Quality in the Greek Cypriot banking industry Managing

Service Quality Arasli, As quoted by the Indian Central Bank enquiry

committee(2031).

85
3.Journals, articles and Registers of the bank.

• Arindam Bandyopadhya and Asish Saha, Distinctive demand and risk characteristic of

residential Mortgage loan loan market in India, Journal of Economic Studies, vol. 38

no. 6

• Kiran Sandhu, Formal Mortgage loan outreach and the urban poor in India,

International Journal of Mortgage loan Markets and Analysis, vol. 6 no. 3

• Pavan Namdeo, Ghumare, Krupesh ,A. Chauhan and Sanjay Kumar M. Yadav,

Mortgage loan attributes affecting buyers in India, Analysis of perceptions in the

context of EWS/LIG consumers view, International Journal of Mortgage loan Markets

and Analysis

• T.S. Anand Kumar, V. PraseedaSanu, Operational guidelines for sustainable

Mortgage loan micro‐finance in India, International Journal of Mortgage loan Markets

and Analysis, vol. 1 no. 4

• Tanu Aggarwal and Priya Solomon, A study on the mediating effect of Mortgage

loan in India, Journal of Property Investment & Finance, vol. 37 no. 5

• Neeta Maheshwari, Rajeev Biyani, Current Challenges for Mortgage loan s in India,

Indian journal of finance vol 5

• D. Srinivasa Kumar, Mortgage loan Snags Faced by Indian Mortgage loan

Mortgagors, Indian journal of finance vol 11

• Patnaik B.C.M, Mortgage loan Portfolio, International Journal of Current Advanced

Research Vol 6,

• Archana Fulwari, Jayant Kumar, An Empirical Analysis of the Demand for Mortgage

loans in Urban India, journal of economics and research vol 5

86
• Souvik Ghosh, Mortgage loan in India and Appraisal Process of Mortgage loan s with

Specific Reference to Indian Overseas Bank, International Journal of Science and

Research

4. NEW PAPERS:

• Economic times

• Business standard

• Financial express

• Times of India

87
QUESTIONNAIRE

1. Do you own a house with its clear title?

Yes [ ] No [ ]

2. Where it is situated?

------------------------------------------------

3. What is the market value of the house?

Below 200000 [ ]

200001 – 500000 [ ]

500001 – 1000000 [ ]

More than 1000000 [ ]

4. Is the house used for residence?

Yes [ ] No [ ]

5. Do you get any pension?

Yes [ ] No [ ]

6. Do you need any financial assistance?

Yes [ ] No [ ]

7. Do you know about MORTGAGE LOANS?

Yes [ ] No [ ]

8. If no, do you need details about MORTGAGE LOANS?

Yes [ ] No [ ]

9. Are you willing to go for MORTGAGE LOANS?

Yes [ ] No [ ]

88