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Beware Of Housing Loan Products, As Fraud Rises With The Uses Of Subvention Schemes

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Beware Of Housing Loan Products, As Fraud Rises With The Uses Of Subvention Schemes
Himali Patel - 25 July 2019

The National Housing Bank (NHB) recently in its latest circular advised housing finance companies (HFCs) to desist from offering loan products which involves servicing of the loan dues by the builders and developers on behalf of the borrowers.

The NHB pointed out that the HFCs along with their individual borrowers are being exposed to additional risks with respect to the housing loan products with subvention schemes that are offered by the builder or developer. “HFCs were advised, inter-alia, that while introducing any kind of product customer suitability and appropriateness issues should be taken into account by the companies,” noted the circular.

With that the NHB in the recent light of events has received several complaints in relation to the aforementioned housing loan products on the back of rising frauds committed by certain builders using subvention schemes. “The prevalent products of HFCs, if any, should also be reviewed on the above lines. It is clarified that the above stipulation shall also be effected in cases wherein the HFC is yet to commence disbursements under the sanctioned cases,” pointed out the NHB circular.

Further the NHB emphasised when it comes to HFCs, their disbursal of housing loans should be strictly based upon the stages of construction and should hold back the disbursal in case of incomplete or un-constructed projects. “In cases of projects sponsored by Government/Statutory Authorities, HFCs may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of construction, provided such authorities have no past history of non-completion of projects,” highlighted the circular. That said, HFC’s are asked to put a well-defined mechanism for effective monitoring of the progress of construction of housing projects. They also need to obtain consent from the borrowers prior to the release of payments to the builder.

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