Wednesday, August 4, 2010

Fewer default on HDB loan repayments

Downsizing, refinancing and loan deferments help households in need

FOR seven years, receptionist L. Boey, 63, had been struggling to make the monthly $1,450 loan repayment to the Housing Board (HDB) for her four-room Choa Chu Kang flat.

Earlier this year, she had a lifeline thrown to her. The HDB found her a studio apartment in Bishan which was big enough for her and her 90-year-old mother, and affordable enough for her to buy using her Central Provident Fund (CPF) savings. She sold her flat in May this year, cleared her debt and moved in.

Financially relieved flat buyers like her have helped to halve the number of those with loan arrears (owing three months' instalments or more) from the peak of 55,700 cases in December 2003.

'I guess I didn't have a choice, but I also felt I was getting old and didn't need such a big apartment,' said Miss Boey.

She was among 2,000 home owners whom HDB helped to 'right-size' their flats between August 2008 and June this year, as a long-term solution to their debt problems.

Another measure the HDB instituted to help households falling behind on payment: allowing them to take an extra loan from the HDB to help them downgrade, even though they had already enjoyed two concessionary loans.

Between January 2008 and June this year, the HDB approved about 2,700 such loans.

These measures, along with others introduced in recent years, and the recovering economy have cut down the number of households who are in hock over HDB loan payments.

There are now about 26,000 HDB households who owe the HDB payments, making up 6.6 per cent of 393,000 accounts with an HDB loan as at June this year. This is down from 33,670 cases forming 7.9 per cent in September 2008.

The HDB team which helped to tackle HDB arrears cases will receive an award for its efforts at the Ministry of National Development's National Day Observance Ceremony on Friday.

An HDB spokesman told The Straits Times it has helped close to 20,000 cases since January 2008.

Short-term measures include reducing loan payments for up to six months, deferring loan instalments for up to six months, and instalment plans to clear arrears.

If the home owner still has difficulty paying the instalments, long-term solutions, such as flat downsizing, would be suggested.

In Miss Boey's case, she had sold off her first Choa Chu Kang flat for a profit and bought another four-room Choa Chu Kang flat for $335,000 on the open market in 1996.

She had a job then as a purchaser, and was granted an HDB loan of $224,000 at a concessionary rate. But in 2003, she lost her job. The money from her earlier sale was also depleted. Even after she found another job in 2008, and rented out a room, she was unable to make the payments.

Her HDB counsellor, who had been working on her case since 2006, suggested that she sell her flat and downgrade. In May this year, she sold her flat for $310,000 and bought the Bishan studio apartment for $83,000 using her CPF savings.

Miss Boey is all praise for the HDB and her MP Zaqy Mohamad. 'If the HDB didn't help me, I guess I would still have to sell my flat, but I may not have been able to find another place within my budget.'

The HDB spokesman said compulsory acquisitions are 'very rare' - slightly more than 1,480 since January 2008 - and usually happen only after a household does not take proactive steps to pay up.

Some households, the HDB said, would include working family members as joint owners to help pay for the flat, or try to enhance household income by sub-letting a room.

Mr Dennis Ng, founder of mortgage consultancy web portal, said loan repayment problems arise when people do not budget for crises.

Some people, he said, use up to 50 per cent of their monthly income to service their housing loan, when the maximum should be 35 per cent.

'If you use half your income to pay for your house, you might be in trouble in bad times, when you face job loss or a pay cut...people must budget first if they don't want problems paying in the future,' he said.

Source: Straits Times, 4 Aug 2010

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