Their failure to cooperate made things difficult: insurer

MADAM Ng and her husband were the only reverse mortgage customers who had exceeded the 80 per cent loan-to-valuation threshold.

NTUC Income said that two other loan accounts were close to the threshold in 2004.

One customer found his own buyer and the sale proceeds were more than enough to cover the loan amount.

Another customer arranged for his children to take over the property and refinanced the loan with another bank.

Income added that Madam Ng and her family were never evicted when repayment was due. The insurer had tried all means to assist them.

Mr Jeffrey Lee, Income’s senior vice-president and chief financial officer, said: ‘The failure by the customer to cooperate made the situation difficult for both parties.

‘In this difficult situation, we would like to point out that the borrowers were never evicted. Ultimately, we had to make the difficult decision to regain the property.’

The trigger point is when the money lent hits the ceiling stated by the insurer – the valuation ratio.

In May 2004, when the ratio was nearing 80 per cent, Income wrote to the couple about the need to reduce the monthly advances.

‘At that point in time, the customer indicated that he would be selling the property,’ said Mr Lee.

‘When the borrower and his wife met up with our loan managers around June 2004, we went above and beyond our obligations and discussed options to help with their financial situation.’

Mr Lee said the options included an offer of employment to Madam Ng and her son, who had recently graduated, as well as suggestions to let out a room at the property.

But these were turned down, he said.

Income wrote to Madam Ng’s husband between January and June 2005 to inform him that the valuation ratio had exceeded 80 per cent and requested for an update on the sale of the property.

It sent more letters between November 2005 and May 2006, Mr Lee said.

‘These repeated requests from NTUC Income drew a blank and sometimes, a muted response,’ he added.

The property was surrendered in August 2006 – two years after the borrower had indicated he would sell it and after Income’s lawyers had sent him a letter.

‘In approaching this case, we would like to emphasise that we exercised great patience in working with the borrower,’ Mr Lee said.

On the borrowers’ claims that they were lay people who were only made to understand simple terms, Mr Lee pointed out that its legal firm which handles its reverse mortgage transactions ‘makes it a practice to explain all terms and conditions to borrowers’.

Mr Lee said that in every instance, it will inform the borrowers about the value of the property with respect to the market price.

And when the valuation ratio is exceeded, Income takes ‘extreme care to explain the various options to the borrowers’.

These include the borrower selling the property, renting out the property to make up for the shortfall in payments or the possibility of their children taking over the loan.

Mr Lee said: ‘In sum, we try to be fair in all our dealings with customers. We also take a long-term view, as evident in the above instance.’

He added that as a social enterprise, Income will extend a helping hand to special cases that are genuine and unfortunate.

Madam Ng said the family was reluctant to sell the house earlier as it would not yield enough money to buy another place.

As for the job offers, Madam Ng said she went for an interview with Income but was not successful in meeting the requirements.

Her son was offered a commission-based job as a financial planner but did not take it up as he got a contract job which had a more stable income.

Madam Ng did not want to rent out a room as her house was old and she would have had to spend money for furnishings.

Source : New Paper – 20 Nov 2008

Plan was to unlock value of semi-D home & get cash every month. But now they are forced to sell & repay balance of loan

THEY once lived in this 350-sq-m semi-detached, house along Upper Serangoon Road.

Then an outstanding home loan forced them to sell it and the elderly couple now live in a rented HDB flat.

Madam Ng, 56, recounted how they had to vacate their landed property, where they had lived for 31 years.

She now works in the sales line. She spoke on condition that we use only her surname.

She said that her husband, who is in his 70s, gets upset whenever the topic is brought up.

The financing scheme seemed like a safe bet to the couple back in 1997.

They were to receive $2,000 a month from NTUC Income under its newly-launched reverse mortgage scheme.

But things soured when the valuation of their house dropped substantially and they were forced to sell their house in 2006 to repay the loan.

Ironic twist

What’s more, the couple now have to pay Income about $630 a month over 10 years to cover the balance outstanding on the loan.

Madam Ng still has newspaper clippings of the scheme back then. It was mooted by the government to provide another option for older owners to get some income from their homes, without having to move out.

NTUC Income’s website says of its reverse mortgage scheme: ‘Unlock the cash value of your home. Provides regular cash for retirees.’

It offers an income stream for cash-poor but asset-rich retirees, who can use their houses as security for a loan dispensed in monthly cash payouts.

Madam Ng attended a seminar by Income in 1997 which was held in an auditorium.

The loan worked like this: Their property was valued at $2.1 million. Income could lend them up to 80 per cent of the valuation or about $1.68 million.

This 80 per cent loan amount is also known as the loan-to-value limit.

Income also settled an overdraft of $495,000 which the couple had taken from a bank, using the house as collateral.

Then taking into account Madam Ng’s husband’s life expectancy, the property value and the interest rate of 5.9 per cent per annum at that point, Income calculated that he would be paid $2,000 a month at that point.

Madam Ng said they signed up for the scheme a few days after attending the talk.

The letter of offer did not state the number of years they would receive the monthly payments, as this depended on many factors that could change.

Payment based on property market

The couple’s understanding from the talk, and from the two officers they met when the deal was signed, was that Income would adjust the monthly payment accordingly when the property market went up or down, said Madam Ng.

They received the $2,000 monthly until 2004, when Income informed them that they were approaching the 80 per cent limit – as their property value had dropped sharply.

Income reduced their payout to $1,750 in August that year.

‘After that, the amount dropped every few months, to $1,500, then $1,250, then $1,000, until it finally hit $300,’ said Madam Ng.

The reason was that the valuation of the house had dropped. This had been explained to the couple earlier.

In June 2006, Income’s lawyer said in a letter that the loan amount due had ‘exceeded 80 per cent of the market value’.

The payments stopped from July 2006.

Madam Ng said she was told by Income that the valuation was about $1.1 million at that time.

Income calculated that the couple owed almost $1.05 million. This included the $495,000 which Income had paid earlier to clear their overdraft, plus the monthly payouts they had received and the compounded interest on these payouts.

As the couple did not have the means to repay the loan, they agreed to move out in August and sell the property.

Madam Ng said she had hoped the property market would pick up. But no one could tell when the market would turn around.

‘We desperately tried to sell the house on our own, but the highest offer we had was $900,000. We had no choice but to move out,’ she recalled.

Income eventually found a buyer who paid $1.05 million in November 2006.

Then in July last year, Income wrote to them stating that there was still a shortfall of almost $55,000.

It allowed them to pay in instalments – $250 a month for the first year and $630 thereafter for the next nine years.

Madam Ng said she deeply regretted not selling the property in 1997. But, at that time, they wanted to both keep the house and get regular cash payments.

Like others who had overextended themselves, the couple was hurt by the bursting of the property bubble.

If property values had kept rising, they could have sold the house, paid off the loan and have enough left over to buy a smaller home.

But when values dived, there was not enough to even pay off the loan.

‘This was the worst financial decision we have ever made,’ said Madam Ng.

Adjusting to the situation

The couple and their son, who is in his 30s, have since been moving from one place to another, either staying with close relatives or renting flats.

Madam Ng did not have to work previously, but she now works part-time trying to make ends meet.

While her husband, who had already retired when he took up the scheme, began driving a taxi at first.

He now takes on any odd jobs he can get.

FALLING VALUE

Feb 1997: Couple sign up for reverse mortgage scheme. They receive $2,000 a month.

Aug 2004: Monthly payout drops to $1,750 as property value has fallen and loan is reaching ceiling of 80% of valuation

July 2006: Couple get last payout of $300.

Aug 2006: Couple and their son move out of their house.

Nov 2006: Property is sold for $1.05m.

Jul 2007: Amount not enough to cover loan, shortfall of $55,000. Couple must pay $250 a month for a year and $630 a month for nine years to pay off their outstanding loan.

Source : New Paper – 20 Nov 2008