CAIIB RB Unit 19 - Lender's Appraisal Procedure

 

Three major phases of loan origination are :

1. Information acquisition
2. Credit appraisal and sanction
3. Disbursement

 

Appraisal Procedures

The appraisal process begins with an application form which normally contains.

1. Personal Information
2. Employment Information
3. Loan Information
4. Financial Information
5. Existing Property Details
6. Property Details
7. LIC Policy Details
8. General Details

 

1. Appraisal

Agreements/letters/application/forms required for the appraisal process:

1. Housing Loan application.
2. Appraisal form.
3. Term Loan agreement for Home Finance.
4. Guarantee Agreement (if required).
5. Arrangement letter (Terms and conditions for Housing Finance).
6. Equitable Mortgage intent letter.
7. Equitable Mortgage confirmation letter.
8. Letter of undertaking (where finance is availed for purchase of plot).
9. Letter to be addressed by the borrower to his/her employer.
10. Letter to be addressed by the borrower's employer to the Bank. Letter when the applicant himself/ herself is the drawing officer. Mortgage Deed (in case of Registered Mortgage)
11. Mortgage Confirmation Letter.
12. Documents in connection with pledge of other securities, wherever applicable.

 

Appraisal form for a Home Loan

1. Eligible loan amount
2. Service Eligibility
3. Age Eligibility
4. Legal Opinion
5. Valuation Details
6. Inspection Details
7. Rate of Interest
8. Security Details
9. Repayment Details
10. Other Charges
11. Litigation Details, if any
12. Relaxation/Concession, if any
13. Disbursement details

 

The house/flat should be insured against the risk of fire/ riots/ earthquakes/ lightning/ floods etc.

A repayment holiday may be allowed for a home loan when the construction is undertaken by a reputed builder, a Government agency etc. and the borrower makes payments in stages over the construction period. The moratorium will be upto 18 months after the first disbursement of the loan or two months after completion of construction.

The interest payable over the period of the loan is calculated and added to the loan amount to arrive at the total payable amount. This amount, divided by the total number of monthly instalments is called the Equated Monthly Instalment (EMI).

Until final disbursement and repayment commences, the borrower pays interest on the portion of the loan disbursed. This interest is called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement of EMI.

In a floating rate interest home loan, the total dues to the lender will change when the rate of interest is changed. The lender does not usually change the EMI amount. The number of installments is increased or reduced depending upon the change in the total dues.

Check-off facility - An appropriately worded irrevocable authority for making salary deductions and remittance to the lender should be taken from the borrower.

In order to ensure prompt repayment of home loans, lending banks obtain post-dated cheques towards Equated Monthly Instalments (EMI)

Mortgage

In India. Immovable property is accepted by the Banks as security usually by way of:

Registered or Simple Mortgage

1. The Deed of Mortgage is required to be registered with the concerned sub-Registrar/Registrar of assurances.
2. By paying applicable stamp duty and registration charges
3. Within whose jurisdiction the whole or some portion of the property to which the document relates is situated
4. Within four months from its date of execution

 

Registered mortgage involves preparation of mortgage deed duly witnessed by two witnesses, payment of ad valorem stamp duty and registration of deed.

Mortgage by Deposit of Title Deeds.

The essential requisites of a "Mortgage by Deposit of Title Deeds" are:

1. There must be a debt, existing or future.
2. There must be a deposit of documents of title to immovable property.
3. The deposit must be made in one of the notified towns.
4. The deposit must be made by the mortgagor or his agent with the mortgagee or his agent.
5. The deposit must be made with an intent to create a security for the debt.
6. Letter of intent should be obtained. Necessary entry should be made in the document register.

 

Right of Foreclosure

On default by a mortgagor, in case of mortgage by conditional sale the mortgagee has the right to sue for a decree from the court to the effect that the former be debarred forever to get back the mortgaged property. Such a right is called Right of Foreclosure, which is provided for under section 67 of Transfer of Property Act.

A suit for foreclosure must be filed within 30 years from the day the mortgage money becomes due.

Priority of Charge

1. Where a mortgagor creates more than one equitable mortgage over the same property in favour of two financing institutions, the institution in whose favour the mortgage is created first, has priority of charge.

 

1. Where a mortgagor has created separate registered mortgages over the same property in favour of two or more financing institutions, the priority of charge will be determined with reference to the date of the execution of the deeds which has been duly registered within four months of execution (not the date of registration).

1. Where a mortgagor gives the same property in equitable mortgage to one financing institution and in registered mortgage to another financing institution, the priority of charge will be determined with reference to the date of deposit of title deeds in equitable mortgage and the date of execution of registered mortgage deed. An equitable mortgage in no way gives inferior rights compared to a registered mortgage.

 

Where immovable property (of which land is the main constituent) is taken as security (primary or collateral) either by way of registered mortgage or equitable mortgage, the following aspects should be looked into:

1. Tenure
2. Valuation
3. Title of land

 

Post Sanction Activities

1. Monitoring
2. Inspection
3. Recovery

 

Restructuring

Circumstances when a restructure may be considered:

1. Unforeseen event/major illness/social functions requiring significant outlay of funds in the family of the borrower or any other circumstance that affect the repayment capacity.
2. In case of salaried class, borrowers who are on "loss of pay" due to lock out/strike/disciplinary action/delayed payment of salary by employer
3. Delayed completion of housing project.
4. Death/Disability of the borrower.

 

However, willful defaulters should not be covered under restructuring programs.

The credit rating should be reviewed annually.