Newbie
ah...this is very different from what was conveyed earlier. "MOST borrowers are in no danger" is rather different from the impression given earlier that one is safe so long as monthly payments are prompt. maybe valuations have not fallen that much yet to affect more borrowersOriginally Posted by repanse71
Newbie
I guess we don’t see a lot of topup case because most of those units bought during the peak was under DPS. Owner did not take up loan during the peak. Owner only taken up loan nearer TOP. The issue is not topup , but the reduced loan amount under the new valuation and the loan limit in this market condition.
The market index is nearer to early 2007 now, if the index fall by another 15% in next 6 months, let put our fingers cross and see what will happen.
ah...this is very different from what was conveyed earlier. "MOST borrowers are in no danger" is rather different from the impression given earlier that one is safe so long as monthly payments are prompt. maybe valuations have not fallen that much yet to affect more borrowers
DN
I think I agree with 爱屋及乌. There are two distinct discussions. One of pre-drawdown (as part of the conditions precedent), and another is during the term of the loan. The key issue now at play which will partly form the basis of the pricing dynamics in the market, and I continue to think that will remain as the key issue at hand even in the months to come as more units TOP, is the sourcing of financing.
Owners under DPS would original set out their sources of funds on the basis of a certain LTV % . There is two parameters - the percentage("%") which banks would finance the property, and the valuation number ("V"). When the % and V, change, then naturally, the sources of funds changes accordinging, in this case, decreases. This limits owners ability to pay up at TOP and thus ability to follow through their oriignal investment/purchase. This is somethign well understood and presented (in some instances, not so well presented by some. Some in this forum likes to presents, perhaps short and in most instances, in what appears to be raw and unconsidered thoughts but they do get it eventually). My view is, this is something which some owners are trying to come to terms with - struggling to obtain their financing.
They above is very different from banks requesting for a top during the term of the loan, after the conditions precedent have been met and drawdown has occured. Something which has been discussed (perhaps argued) at lenght. Some interesting thoughts has been presented, some in its raw and unconsidered form, often demonstrating the level and strength (or weakness) of the analytical mind possess.
On the note of banks asking individuals to top up, here are my views, reproduced from my earlier post.
This is from my personal experience and observation. Banks may ask you to top up but I believe this is done on a best efforts basis and to the maximum extent the owner can do so (i.e. by exercising any set off rights the bank may have on their accounts and likewise).
Let's assume the following scenario.
Assuming you are Bank A (where A is a local bank), and you have a mortgage loan customer with LTV=80% at signing and drawdown back then. This borrower is a good customer and has been paying his mortgage payments on time. LTV now falls to say 75%. You ask the customer to top up 5%. Customer says he has money to make the monthly mortgage paymetns but no money to top up the 5%. You discuss this a number of times with this customer, after 4 weeks, he is still not able to top up. Your next course of action available is then to exercise your right to enforce security, apply to the court for foreclosure on mortgage asset, extinguish the equity of redemption held by the owner, and power of sale (pursuant to the terms of the mortgage loan).
I do not think people are arguing if the banks will ask you to top up or not, the real question is if banks will really enforce security, file for foreclosure on the mortgage, apply to the courts to extinguish the equity right of redemption, and proceed to enforce their right to power of sale. The legal process typically will take quite a while, say 3-4 weeks. From the time the bank determines LTV is 75%, the Borrower refusal to top up (after multiple consultation), application to court for power of sale, and eventually reception of actual proceed of the sale (if they get to sell it off successfully), it will be quite a while. At that time, LTV may even be at about 65% or 60%. Banks then take an approx. 20% write off against their funded exposure.
Now, if you have a customer whom have originally been paying their mortgage payments on time, why would a bank want to go through this enforcement, in the process take up reputational risk, and credit write off. Once you enforce security and foreclose on the asset, you are effectively giving up on a paying customer whom have been satisfying his loan obligations but simply not able to top up the shortfall in LTV ??
If you are the credit committee of the bank, are you able to stand up to the argument of enforcing the security notwithstanding
(i) your customer has been making good on his mortgage payments; and
(ii) considering the bank faces a highly likely prospect of loan write off (not even provisioning)
if they take such an enforcement action given the time lag in process and prices in a falling market.
Assuming the above holds true, the bank who decide to exercise their rights to enforce will have to
(i) commit resources to this particular work-out,
(ii) incur legal fees (though under the loan docs you probably have right for these to be reimburse, but we are talking about a forcing a bad loan into enforcement with potentially recovery rates of less than 90%(potentially)),
(iii) and other OPE expenses.
Like we discussed above, chances are, the banks will be more than happy if they can already recover their principal loan, not to mention these enforcement expenses (both in terms of management time, staff resources, legal risk and most importantly, reputational risk, and social good-will). Given the light of the above, two questions.
Q1. Would you actively pursue a policy of requesting performing loan assets to top up? and
Q2. Have you have seen this or have direct personal experience in such top ups leading to enforcement action by the bank (realisation of equity investment loss).
I am not sure how many of the forummers here have really been through a work-out situation with the liquidation counsels of a bank or is it just plain thoughts thinking wild and aloud in your own minds that banks will act or behave in a certain fashion. For those whom have direct experience in a bank top up situation, leading to enforcing (i.e. realisation of investment equity loss event) on the same, please share.
Personally, I firmly believe that the enforcement route is never the bank's preferred route or recovery. In fact, in most cases, recovery rates are usually lowest by way of enforcement. Banks typically do not adopt the enforcement action unless it is the absolutely last resort. If you have a paying customer, banks are usually quite happy. Consequentially, requesting customers to top is not often preferred if they already know it is likely to lead them to a worse off position that what they could have achieved, if the customer has been and is still continuing to make timely payments.
I invite everyone not to take my word for it. Talk to your independent insolvency counsel and make your own judgement and views on the same. By the same token, for those who would like to speak and voice their views, you are naturally welcomed to do but please do so with logic, reason and structured and grounded arguments. Often, we see hand-waving comments and views, unsubstantiated irrational remarks both from a credit point of view; operationally/institutionally impractical from the banks' point of view.
Newbie
I agree with u that force top up or foreclosure is not a prefer method from bank perspective.
You example may explain the current situation. However , as I pointed out , what if the property valuation fall another 15% in next 6 months, hence the loan to valuation will be 20% short. Would the bank actively do some something to mitigate thier exposure....?
DN
Instead of asking questions, perhaps you can form a view and share what you might do, if you are the bank ??
From my point of view, and as supported with my various considerations, I do not think it is in the best interest of the bank to enforce the same, if the customer have proven have kept up with his payments and substantially believed to be able to continue to do so.
Newbie
I know DBS will never ask for top up for negative equity cases. My 3 housing loans are all from DBS and keep repricing the loans every 2 years. I may get slightly lower rates from other banks but I still stick to DBS because I know they will not take the umbrella away in bad times unlike other banks.Well, as mentioned, I'm a ready customer whom I believe any of the local or foreign banks will be all too ready to do business with. So if repase71 is so sure his bank do not ask people to top up, I see it as a win-win situation for both of us to do business.
In fact, I believe a lot of forumers will also want to take their mortgage to his/her bank. UNLESS, he is not sure of his own statement or he is just not speaking the truth which explains why he/she doesn't dare to reveal the bank/ branch.
Ok, let me relax the `rule' a bit, just tell the forum the bank will do
Otherwise, do not speak so boldly and claim as though you are the authority and work for a bank and thus know that banks do not ask people to top up, because I know of cases where banks to ask people to top up.
Newbie
The banks (or at least the local ones) must also share the same views collectively, and i agree they are at the current point in time.
Perhaps those with experience from the 1997 property crash can share their views about the reaction of the banks back then regarding top-ups.
Global recession is coming....
Thanks for the valuable information. This is what we have been looking for: Real cases to confirm whether do banks actually request for "top-up" in negative equity cases and which banks are these.
Newbie
I bought a unit(Paterson Edge)about $1500psf on Sept 1997 during launch from Developer(Sembawang Land). I have OD of exactly 1 million from OCBC pledge against the property. Despite the crash in 1997 , I believe the valuation has dropped to $1200psf or lower though these is no transaction for Paterson Edge during that time, the bank has never asked for top-up or income vertification till 2003 when I sold off my property.
Senior
made good many ya ?? David Gan bought there as well i think ...said die die must live there ... ahhah
Newbie
If u can afford , always buy prime(location) for rental and higher potential of capital appreciation.
Last edited by Bishan Kid; 06-04-09 at 12:33.
DN
Proponents of banks-will-ask-for-top-ups can perhaps share their views (substantiated) and direct experience on the same ?
Newbie
good point, fully agree with you.
only problem for noobs like me is don't know what is my affordability level. if no outstanding loans of any kind, have 1.5 million spare cash and can fork out $5K/month easily for servicing any loan, what do you think is affordable for someone who is risk averse?
thanks for sharing
Newbie
I talked to loan offcier from DBS , she was relanctant to commit that DBS never ask for topup if my property under negative equity...
Buyer out there , confirm this with your bank on this topup matter and make it black and white in your contract.
Newbie
I highly doubt any bank will put it down in black and white that the bank will never ask for top up if the property is under negative equity...
if there is ever such a clause, pls let us know. This bank will likely take a huge share of the mortgage market.
i think enough has been said about this topic. my conclusion after reading all these posts is that:-
I will assume that banks may ask for top up when valuation falls. Hence I will put myself in such a position that even if there is a requirement to top up, I will be able to do so w/o compromising my financial position in too drastic a manner.
All in all, borrowers beware!
Newbie
Actually, it's more meaningful to ask and for loan officer to tell under what circumstances have DBS asked for top-up recently and in the past.
Bank will never commit "never top-up" in black and white as someone already pointed out.
Regards
Global recession is coming....
How to make it black and white when there are so many variables involved (from clients' side and not the bank's side)? The most important issue to banks is: "Are you credit worthy?". How to put in black in white that "when you are not credit worthy, bank will ask for top-up?". As long as a person is 'credit worthy', if this bank tries to be funny, go to another bank! Would bank want to lose a "credit worthy" customer? The answer is an obvious "NO". Thus, I have never heard of "credit worthy" customer being asked by their bank for top-up. For those I had heard of being asked to "top-up", they are all not "credit worthy".
Newbie
I have seen for myself 4 cases of credit worthy customers who were asked to top-up their loans because their properties' valuation all fell below loan outstanding. If you are just speaking based on the assumption of `why would banks not do business with credit worthy customer?' and that `recent newspapers article say so.', I suggest you stop creating false sense of confidence that may encourage people to over-stretch themselves.
Besides, how many people do you know? Even if you are a loan officer in a bank, does it mean that just because you HAVN'T seen any cases, it represents the entire market?
Today, my staff finally got another bank to grant him a home loan after his previous bank ask him to top up. All 4 cases managed to refinance their mortgage and at rates lower than their previous banks. Thus they are not `credit unworthy'. Therefore banks DO ask people to top-up when valuation drops below loan outstanding. Although I believe its not common practice now, but once it becomes prevalent, it will become `market practice'.
I will continue to retort if I see irresponsible postings that suggest otherwise or give the impression that `banks will not ask people to top-up, as long as they pay up installment monthly and are credit worthy.'
DN
When I was university there was once this class talkin about enforcement of the law which may potentially consititute as a form of clamp down on human rights, the right to assemble. This is illegal in certain jurisdiction but in some others acceptable (subject to a minimum count).
We then discussed this particular, in my opionion rather interesting observation on the right and power vested in the Police pursue action against gathering of groups of people more than 4 (considered as illegal gathering). I am not a practitioner in criminal law or particularly familiar with penal but this discussion was back then broad enough for most average joe to basically understand the issues.
Assuming it is illegal in Singapore to gather in groups of more than 4 without a licensed permit or pre-approved application ("Permit"). And further assumed, it is not required nor is the burden of proof on the Police to demonstrate or have sufficiently exceeding suspicion of whosoever intents upon the said relevant group to exercise the call of illegality in such gathering. Simply put, we are assuming it is within the immediate, direct and discretionary power of the Police to pursue action any group of 4 and above who might be gathering without such prior Permit.
Question is: do you see this being actively pursue actions against, in general, gathering of persons in spaces and/or collective domains of spaces ? Answer is probably no.
While this is a right or power seldom exercise (but not never), do you see the legislation to be amended, in the light of this right which is seldom exercised, or at least to the extent in a form of a written idemnity by the said relevant authority or perhaps the relevant legislative body ??
I know this may not be a perfect matching parallel to what we discussing herein, but this is something quite clear. A right seldom exercised often leads consumers, who in their own personal immediate capacity and perhaps limited perception of why certain drafting are as drafted, thinks it is then in their best interest to be removed completely. This, I would say, is not clear who will then be the eventually winner if that is indeed removed.
Banks revenue model is such that they get paid for the risk they take (let's not go into the details of term financing and term structures of interest rates which forms the next basis of the business model). By isolating or offloading certain risk, and in some ways by means of certain credit enhancements or structures, banks find that they might be able to provide such financing at a lower rate than they otherwise would not do so.
The ability to call for a top up is one such structure in the loan agreements which provides them "early warning" and allows them to derisk if they have to (derisking the loan asset, from its "heightened risk" level by way of reducing/maintaining a certain LTV during times of devaluation).
Assuming the postulation of banks seldom asking for top ups is true, and if and only if this is true, should not the customers of the loan be happy ?? The effect is that, the loan pricing already priced in a structure which is suppose to work for the bank, but if indeed it is seldom exercised, you are getting the benefit of a loan priced in with such structure but seldom exercised.
On the other hand, assuming DBS comes up with a new loan product which explicit sets out and removes this structure which require customers to top up, what is your guess on such a loan ??
The risk and its associated contingent exposure profile of mortgage home loans has been well studied in the Singapore market. Chances are, factors of such structures (top up) are already factored in and the loan prices reflects this. For something which is already priced in, and if DBS does come up with a new loan product without this top up, what say you on the credit pricing for such products?
Sometimes, it is important to think a little more deeply in issues and matters. This is not rocket science and neither do you have to be part of the banks credit committee to form a view.
Different people reading the above will naturally have different views and perhaps different response. Everyone can form a view and I agree. I was once told - "Everyone can be a partner of a firm, its all about being a good partner or a bad one".
Global recession is coming....
There is nothing irresponsible in the discussions. We are trying to uncover the truth. As you are not the actual party involved in your mentioned cases, how do you know what are the actual reasons causing the banks to ask for top-up? The involved parties may not be telling you the whole truth (just like those that previously complained to newspapers were not telling the whole truth to the reporters until the truth were uncovered by the banks). As you mentioned, since they are not "credit un-worthy", they can switch to another banks anyway and they had done so even with better rates! So, most important thing for anybody is to keep themselves "credit worthy" and they then don't have to worry about "top-up". So, fact is (and as even supported by your 4 mentioned cases now), there is nothing to worry about property valuation falling below loans amount!
Newbie
lol, you are amazing, still trying to cast doubts on others sharing of experiences (many times, sharing of experiences need not be your own to be true and factual).
first, you claimed that ONLY customers who are not "credit worthy" will be asked to topup. HP65 just tore apart your claim by citing a few real life examples of those who were asked to topup by their bank but were able to secure housing loan from other banks. if they were not credit worthy, why did the other banks extend a loan to them? since they were credit worthy, why did their current bank ask them to topup?
bottomline, buy within your means. why buy if prices are definitely going down? at times like these, only property agents, developers are asking you to buy...even bankers have advised customers not to buy
Newbie
3 of them cases approached me to be their guarantor in case they can't find a bank to refinance their cases. And I also personally questioned the bank, in the presence of the concerned parties reasons for the top-ups when valuation drops below loan-outstanding but were offered no concrete reasons except for its `within the loans provision and `regular loan review guidelines procedures to better reflect current market risks'.
End of day, I have seen how 3 families could have been torned apart due to mis-information. The 4th case has the money to top-up but choose not to as a matter of principle. And you want to call this mis-information responsible? Some things are grey, but this is black and white crystal clear to me that banks can and will call for top-ups in the event valuation drops below loan outstanding.
Junior
A most excellent post sir. Just to clarify, your 'value below loan outstanding' means:
- $1m property, $800k loan. Now property is worth $700k, loan outstanding $750k. Topup 50k?
Newbie
Ya since the subject is hot. I have a question too.
When ask to top up. To what level it should be?
To the valuation or to the valuation minus 10/20/30%?
Global recession is coming....
Ha ha ha, the answer to your first question is very simple! - Not every bank is like some banks in USA by extending loan to any Tom, Dick & Harry. Therefore, some banks are willing to except higher risks to get their new deal while others don't and hence are asking for top-up and prepared to lose this perceived "risky" deal.
As regards to the second issue you raised on "why buy if prices are definitely going down? at times like these, only property agents, developers are asking you to buy...even bankers have advised customers not to buy", it is irrelevant to our discussion on "top-up". However, for curosity, may I ask how do you know the property prices are definitely going down? It is amazing that you can make such a strong and confident statement! Are you god? Only god will be so confident to say whether the property price will surely go up or go down in future. Now, who is the one really trying to mislead?
lol, you are amazing, still trying to cast doubts on others sharing of experiences (many times, sharing of experiences need not be your own to be true and factual).
first, you claimed that ONLY customers who are not "credit worthy" will be asked to topup. HP65 just tore apart your claim by citing a few real life examples of those who were asked to topup by their bank but were able to secure housing loan from other banks. if they were not credit worthy, why did the other banks extend a loan to them? since they were credit worthy, why did their current bank ask them to topup?
bottomline, buy within your means. why buy if prices are definitely going down? at times like these, only property agents, developers are asking you to buy...even bankers have advised customers not to buy
Global recession is coming....
Yes, there is no dispute that "banks do request for top-up". Probably the controversy is in what constitute them to request for top-up? Some banks have clearly stated they don't request for top-up just because "valuation drops below loan outstanding" but rather they look at the "credit worthy" of the client as a whole. How to judge "credit worthy" vary from bank to bank. It would be good to know more on how they judge on this but I believe we probably can never know the truth unless we are the actual party involved because this will involves knowing a person's true net-worth and spending patterns, etc. (Fact is, I will never release such detail financial info & as such I don't expect people to do so too!).
Newbie
Able to reveal the names of the banks involved in asking the Top-ups? There is an argument that local banks are more unlikely to ask for top-ups as they have more vested interest becauase they are rooted for the long haul in Singapore.
Newbie
Thanks HP65 for sharing your (friends') experience. I'm also interested to know which are the bank/s that have asked your friends for top-up. Please kindly share with the fellow-forumers.
Newbie
In my discussion with the bank, we were not able to determine the amount to top up as there were dispute between the in-house and 2 external independent valuation (1 of it was my valuer). As the process dragged on, the internal valuer even revised the valuation down-wards by 5% in a matter of 2 week in early March. Maybe the stock market plunge affected the valuation then....but then again they didnt revised the valuation when stocks rebounded in the last 4 weeks since.
Basically we were trying to reason with the bank, look, the monthly payments has been prompt, no change in the financial situation of the parties involved, you are earning good margin spread, why are you pushing good customers away? The exact same reasons that some of you has put forth. They said, sorry, its standard bank policy to review our loan portfolio. I asked, `marked-to-market?', They said no, just std bank procedures.
I was hoping they would say , yes, its due to MTM, and I would tell them to wake up since FASB has since relaxed that rule.
Anyway, I do not want to disclose the name of the bank, as it might implicate my friends and staff. End of the day, just keep some buffer when taking up a mortgage loan and avoid buying when market is hot.
There is no such thing as runaway prices (vs affordability), especially when it comes to properties. End of the day, the market will adjust itself. I have seen it in developing markets like vietnam (few yrs back) and mature markets like UK.
Newbie
Can't even disclose whether its local banks or foreign banks?
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