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This product has a no negative equity guarantee. Revision of real estate lending regulations - no more guarantees On 28 June 2013, the Monetary Authority of Singapore (MAS) heralded the launch of further steps to fine-tune the regulations on housing loans, which entered into force on 29 June 2013. The MAS Communication 632 has been modified to take account of these new regulations and the MAS has also published a new Communication 645 containing detail on how banking and finance institutes should calculate the overall service charge for real estate loans.

The MAS 632 message is applicable to loans taken out for the purpose of purchasing real estate (housing loans) and loans not taken out for the purpose of purchasing real estate but otherwise covered by real estate (equity loans). Every individual who has contributed to part of the redemption rate of a loan provided to another individual who has been classified by a banking institution as being incapable of paying part of that rate must now be involved and mentioned as a co-owner of the loan and not just as a guarantee.

The new scheme will apply to all home loans for which the call facility was provided on or after 29 June 2013 and to equity loans provided on or after 29 June 2013 and to the refinancing of such home loans and equity loans. The change will prevent a trader from receiving more than 80% of a mortgage in an indirect way (assuming he is less than 35 years old and the credit holding is less than 30 years) by guaranteeing a mortgage (e.g. an 80% mortgage where the debtor is his spouse but he actually repay all or part of the mortgage ) and another 80% mortgage in his own name for another asset.

The MAS 632 communication has always referred to the'borrower' requesting the loan facilities, but no differentiation has ever been made between a lender and a mortgage debtor, since mortgage debtors were usually the lenders of a real estate asset. With the various LTV threshold cuts in recent years and the implementation of ABSD (Additional Buyer's Stamp Duty), however, more and more real estate buyers have decided to use the families' name to buy home ownership in order to obtain higher credits due to higher LTV thresholds and/or to avoid or reduce the amount of ABSD liabilities.

As of the last change, all borrower of a home loans, an equity loans or a refinance home loans or an equity loans must now also be a mortgage borrower of the home for which the borrower is taking out the mortgage. Similarly to the guarantor scheme, this also applies to all home loans for which the call options were issued on or after 29 June 2013 and to equity loans issued on or after 29 June 2013 and to the funding of such home loans and equity loans.

Interestingly, when funding a home loan, the above mentioned regulations, according to which all debtors must be mortgages debtors and guarantees must be debtors, only applies if the call facility for the home in concerned was given on or after 29 June 2013. That would mean that someone who refinances a home loan taken out in 2008 would still be able to take out a third country loan where the debtor does not have to be a debtor and where the guarantee does not have to be taken out as a debtor.

An area that MAS has not directly addressed is the position where a debtor (Party A) applies for a loan facility in respect of one real estate (the second real estate) and is a mortgage lender of another real estate (the first real estate) but is not a debtor under loan arrangements that have been extended for the purpose of purchasing the first real estate or otherwise backed by the first real estate.

Should a prudential institution providing a second real estate purchasing facilities, in such a scenario, take into account the amount owed by the first real estate collateralised lending facilities when setting the LTV limits it may provide to Party A? Probably, yes, because Party A is basically joint and several responsible for the debt with the debtor of the first real estate (although he is not mentioned as the debtor of this loan), and it amounts to the same ground for the obligation that all debtors must now be debtors of a debt.

The MAS 645 Notice states that in the determination of a borrower's aggregate liability for each month, MAS requires that if a borrower is a surety, no less than 20% of the remaining amount of the remaining amount of a principal balance of another applicable borrowing facility for which the borrowing is a surety must be considered.

Against this background, in the above example, where a mortgage creditor acts as surety, taking into account the pending principal on the first real estate, in setting the LTV threshold of the principal to be provided to Party A, in the above example, bank and finance institution must take into account the principal on the second real estate for the purpose of establishing the LTV threshold of the principal to be provided to Party A.

Equity-loans and loans taken out to fund an equity loan are now also granted a term of up to 35 years. So far there has been no limitation on the maturity of an equity loan, and this new request should probably combine the credit maturity rule with those for home loans.

An equity and a refinancing line of 35 years each may not be exceeded by an equity loans and a refinancing line of 35 years each, so that it seems that an equity can be further refinanced for a new 35 year each. Until now, there has been no clear provision on how banking and finance institutes should deal with the ages of beneficiaries when assessing the repayment period of a given debt if there is more than one beneficiary, with the exception that a "bank should use the ages of the beneficiaries used by the institution for its rating of the debt facility".

A number of them had used the youngest years, resulting in a longer term of office, while others had used the oldest. In order to remedy this discrepancy, the revised regulations require banking and finance institutes to use the borrower's specific weighting mean of the borrower's maturity, measured on the basis of their total income per month1 for two or more borrower.

To date, banking and finance institutes do not need to audit Credit Bureau (Singapore) or the Housing Development Board (HDB) if: they grant loans of or below the 40% LTV requirements and if the amount of a buyer's payment is 25% or more of the sale value of the real estate; bridge loans (repayable within six months).

Now they have to do this in the above mentioned circumstances, but only for the purpose of evaluating the creditworthiness of the debtor. First, all real estate loans must not pass the 60 TDSR thresholds in order to give both creditors and debtors enough getting used to the new system.

These new limits shall be applicable to a debtor of: any loans for the acquisition of real estate; any refinancing loans for loans referred to in paragraphs 1 and 2. The policy is applicable to loans to private persons, as well as individual enterprises domiciled in and outside Singapore, and to any car furnished by a private individual exclusively for the purpose of purchasing real estate.

This includes all kinds of real estate loans, whether home or non-residential, and also includes real estate inside and outside Singapore. Specifically, the new regulations specify how banking and finance institutes are to measure a borrower's overall liabilities and overall earnings per month, and how banking and finance institutes are to review this information in order to determine the interest payments per month under the loan facilities on the assumption of a medium-term interest rates of 3.5% for housing loans and 4.

5 per cent for commercial real estate loans; if a debtor has rent revenues, a ceiling of 70 per cent of the total rent revenues per month may be added to the total annual salary, and there must be a residual term of at least six years. Whereas MAS has shown a way for the borrowers to self-declare their source of revenue and liabilities, bankers still need to conduct their own separate audits at Credit Bureau (Singapore) and HDB (to check a borrower's liability ) and now obtain declarations from the CPF Board and IRAS (to check a borrower's source of revenue).

This is the difficult part when a debtor has certain pending borrowing arrangements with a foreign entity outside Singapore, e.g. when the debtor has taken out a pending mortgage to buy real estate in Australia from a Australian local depository. According to the Relevant Pending Facility definitions, such indebtedness should be taken into account by a banking establishment when calculating the borrower's aggregate indebtedness.

Then how can a local government check such indebtedness? In view of the scope of the Regulation, it would be the logic to base the statement on the borrower's self-declaration and, in this context, the statement should be as broad as possible, by asking a question which will lead a borrower to provide all the information that can help the institution to determine whether such external indebtedness exists and, perhaps in a similar way, any foreign earnings.

In the event that there is any further information available from the originator of the loan from the originator that the originator may have foreign liabilities, the originator should provide the originator with further information and documentation in order to settle the originator's liabilities.

For the above example, the banks should request a tender note from the Aussie banks and account statement for the loans overdue. TDSR does not cover: a loan facilities backed by a collateral pools, including real estate, where the fair value of the real estate is less than 50 per cent of the fair value of the collateral pools at the date of use of the loan facilities.

TDSR can also be crossed in the case of a funding facilities for the acquisition of a home if the 60% threshold: 29 June 2013; the Home Ownership (including non-residential real estate) is the only ownership (including non-residential real estate) that the Mortgagor holds either itself or together with others; the Mortgagor is one of the users of the Home Ownership; the Mortgagor does not have any other pending loan facilities (neither in its own name nor together with others) otherwise backed by a Land plot, which includes the Home Ownership to be refinanced, or the funding of such loan facilities2.

Banking and financials must obtain supporting documents to check all these points. A similar exception applies to users who are owner-occupiers and who are not able to comply with the current ceiling of 30 per cent of the rate of processing mortgages for refinancing loans for HDB-dwellings. Those exemptions allow individuals with only one home (and no other home (residential or other) and no other loans receivable backed on real estate (including equity loans backed on the home)) to repay their home loans taken prior to the implementation of these new regulations without which they may not be able to fund their current home loans and benefit from lower interest rate levels.

Prior to the transposition of the new TDSR provisions, banking and finance institutes already have their own in-house evaluation standards for a borrower's service rate, so that the new regulations, which crystallize and standardize these standards, should not differ too much from what is already established by the banking industry, with the exception that they leave less room for bank exemptions.

Most likely, if you now approach a banking institution for a credit, there will probably be fewer variations between banking institutions in the amount of the credit that the banking institutions can provide. However, the changes to MAS 632 may seem like slight clarifications, but they may have a greater effect (than the new TDSR rules) on the reduction of real estate buying and lending requirements, as you cannot just use someone else's name to buy real estate and/or so readily obtain a credit.

Timing alone will show the real effects of these changes, but in the meantime you should reckon with a longer wait for approval of your credit-application!

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