<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR><TD height=8></TD></TR><TR><TD class=msgtxt>Sub-prime and HDB
Are there parallels, historical similarities, contrasts and comparisons, between the bailout of F & F in the United States, and Singapore - in the context of housing policy ?
F & F were founded with the primary aim of helping more Americans to own homes.
The HDB was set up with a similar objective.
Just as F & F enabled poorer Americans to get home financing, where banks had historically been hesitant to lend, by guaranteeing loans, the HDB actually went even further by building the flats and providing the loans.
As it was implicitly perceived that F & F was backed by the U. S. Government, lenders lent to practically anybody (sub-prime), without worrying about the risk of default.
Well, before the HDB introduced recent measures like the loan eligibility letter, it too in its early years sold flats and gave low interest loans to practically anyone who applied.
Now, it will only give HDB concessionary loans to those who upgrade to a bigger flat, but not to those who down-grade or buy a same size flat.
The chairman of the U.S. Federal Reserve (the Fed) had sounded the alarm long ago, that F & F was a monster that may grow out of control.
HDB
In Singapore, I guess, probably the crunch came when it was reported that about 40,000 HDB flat dwellers were in arrears.
The latest HDB Annual Report does not show the number given financial assistance anymore, but the previous Annual Report showed over 26,000.
So, from 1 January 2003, banks were allowed to give loans for HDB flat purchase.
Even those who were eligible for the maximum two times HDB concessionary loan, could choose a bank loan.
In fact, many who were lured into choosing bank loans because of lower interest rates in the first three years, many now be regretting as bank rates are generally higher than HDB’s.
It was reported in the Straits Times this year, that reportedly about 60 HDB flats a month, are foreclosed by banks.
The last reply in Parliament to a MP’s question, was that seven per cent of HDB bank loans were in arrears over three months. The estimated number of HDB bank loans is now about 100,000.
In comparison, even at the height of the sub-prime crisis in the United States, the estimated delinquency rate is 5.12 per cent for home mortgages (“A simple, painless way to tackle the credit crisis”, ST, Sep 22).
According to the Economist (Sep 27), the chart in the article “The doctor’s bill”, shows a 90+ days delinquent rate of only about 4.5 per cent.
In this connection, the HDB said that only 360 flat owners voluntarily surrendered their flats between 2003 and 2006.
From the experience of HDB flat owners who cannot pay, the HDB has asked them to sell in the open market, helps to initiate a valuation of the flat, and allows any loss between the flat sale proceeds and the HDB loan balance outstanding to be paid by installments in the future.
Such “open market” sales by those who cannot pay for their mortgage, are of course not counted as “voluntarily surrendered their flats” statistics.
For private property loans, the first charge was changed from CPF to banks with effect from 1 September 2002.
For pre-1 September 2002 housing loans, only the CPF Minimum Sum will be protected (first charge) from the mortgagee bank, when the borrower reaches age 55.
The above two measures partially solved the problem of defaulted mortgages which had CPF as the first charge.
The U.S. experience of encouraging particularly poorer Americans to own homes has now resulted in the sub-prime crisis, and the bursting of the housing asset bubble.
It is still not known, to what extent the bailout will cost American taxpayers.
In Singapore, to what extent has our over 80 per cent home ownership achievement, resulted in the loss of homes and maybe CPF life savings too ?
We don’t really know, because unlike in the U.S., there are no regularly published break-down statistics on HDB concessionary loans, HDB bank loans, private property loans, arrears, default, foreclosure, CPF losses, negative equity sale losses, etc.
In this connection for example, the last time a reply was given in Parliament to a question - about three per cent of about 11,000 first-timer HDB flat-buyers on bank loans, were in arrears over three months.
One needs to note from this statistic, that it only refers to “first-timers” on bank loans.
Another difference possibly, between the U.S. and Singapore, may be that whilst taxpayers’ money are being used for the F & F bailout to help Americans keep their homes in a rapidly assedeclining environment, perhaps the foresight of the Singapore Government has forestalled the eventuality of a sub-prime or housing asset bubble crisis.
In this regard, perhaps the only slight blur on the silver lining, is that both HDB and private property price indexes now are still below their last highs in 1996.
Another possible difference in future scenarios, may be that the U.S. crisis is more confined to housing, as Americans’ pensions cannot be used for home purchase.
In Singapore, because of the use of CPF for housing, only the future may tell, as to what extent, particularly lower-income Singaporeans, may have difficulty monetising the last reported statistic that even the lower-income have about $ 138,000 of equity in their HDB at retirement.
In this regard, I understand that the HDB may be reviewing its policies, like the 30-month waiting period to rent, buy a smaller new HDB flat, or down-grading from private property, to take into account the financial plight of applicants.
I hope that the HDB’s policy review, will follow the U.S.’s focus and rationale in the F & F bailout, i.e. to help people keep their homes.
According to the article “Too many data cooks” (Newsweek, Sep 15), statistics in many countries are unreliable and may be watered down to look better.
In a sense, we may be better off in Singapore, as some of the above-mentioned remarks on statistics may indicate that not having regular break-down statistics may actually be better than having fudged ones ?
In memory of JB Jeyaretnam.
This article was written on 30 September 2008.
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Are there parallels, historical similarities, contrasts and comparisons, between the bailout of F & F in the United States, and Singapore - in the context of housing policy ?
F & F were founded with the primary aim of helping more Americans to own homes.
The HDB was set up with a similar objective.
Just as F & F enabled poorer Americans to get home financing, where banks had historically been hesitant to lend, by guaranteeing loans, the HDB actually went even further by building the flats and providing the loans.
As it was implicitly perceived that F & F was backed by the U. S. Government, lenders lent to practically anybody (sub-prime), without worrying about the risk of default.
Well, before the HDB introduced recent measures like the loan eligibility letter, it too in its early years sold flats and gave low interest loans to practically anyone who applied.
Now, it will only give HDB concessionary loans to those who upgrade to a bigger flat, but not to those who down-grade or buy a same size flat.
The chairman of the U.S. Federal Reserve (the Fed) had sounded the alarm long ago, that F & F was a monster that may grow out of control.
HDB
In Singapore, I guess, probably the crunch came when it was reported that about 40,000 HDB flat dwellers were in arrears.
The latest HDB Annual Report does not show the number given financial assistance anymore, but the previous Annual Report showed over 26,000.
So, from 1 January 2003, banks were allowed to give loans for HDB flat purchase.
Even those who were eligible for the maximum two times HDB concessionary loan, could choose a bank loan.
In fact, many who were lured into choosing bank loans because of lower interest rates in the first three years, many now be regretting as bank rates are generally higher than HDB’s.
It was reported in the Straits Times this year, that reportedly about 60 HDB flats a month, are foreclosed by banks.
The last reply in Parliament to a MP’s question, was that seven per cent of HDB bank loans were in arrears over three months. The estimated number of HDB bank loans is now about 100,000.
In comparison, even at the height of the sub-prime crisis in the United States, the estimated delinquency rate is 5.12 per cent for home mortgages (“A simple, painless way to tackle the credit crisis”, ST, Sep 22).
According to the Economist (Sep 27), the chart in the article “The doctor’s bill”, shows a 90+ days delinquent rate of only about 4.5 per cent.
In this connection, the HDB said that only 360 flat owners voluntarily surrendered their flats between 2003 and 2006.
From the experience of HDB flat owners who cannot pay, the HDB has asked them to sell in the open market, helps to initiate a valuation of the flat, and allows any loss between the flat sale proceeds and the HDB loan balance outstanding to be paid by installments in the future.
Such “open market” sales by those who cannot pay for their mortgage, are of course not counted as “voluntarily surrendered their flats” statistics.
For private property loans, the first charge was changed from CPF to banks with effect from 1 September 2002.
For pre-1 September 2002 housing loans, only the CPF Minimum Sum will be protected (first charge) from the mortgagee bank, when the borrower reaches age 55.
The above two measures partially solved the problem of defaulted mortgages which had CPF as the first charge.
The U.S. experience of encouraging particularly poorer Americans to own homes has now resulted in the sub-prime crisis, and the bursting of the housing asset bubble.
It is still not known, to what extent the bailout will cost American taxpayers.
In Singapore, to what extent has our over 80 per cent home ownership achievement, resulted in the loss of homes and maybe CPF life savings too ?
We don’t really know, because unlike in the U.S., there are no regularly published break-down statistics on HDB concessionary loans, HDB bank loans, private property loans, arrears, default, foreclosure, CPF losses, negative equity sale losses, etc.
In this connection for example, the last time a reply was given in Parliament to a question - about three per cent of about 11,000 first-timer HDB flat-buyers on bank loans, were in arrears over three months.
One needs to note from this statistic, that it only refers to “first-timers” on bank loans.
Another difference possibly, between the U.S. and Singapore, may be that whilst taxpayers’ money are being used for the F & F bailout to help Americans keep their homes in a rapidly assedeclining environment, perhaps the foresight of the Singapore Government has forestalled the eventuality of a sub-prime or housing asset bubble crisis.
In this regard, perhaps the only slight blur on the silver lining, is that both HDB and private property price indexes now are still below their last highs in 1996.
Another possible difference in future scenarios, may be that the U.S. crisis is more confined to housing, as Americans’ pensions cannot be used for home purchase.
In Singapore, because of the use of CPF for housing, only the future may tell, as to what extent, particularly lower-income Singaporeans, may have difficulty monetising the last reported statistic that even the lower-income have about $ 138,000 of equity in their HDB at retirement.
In this regard, I understand that the HDB may be reviewing its policies, like the 30-month waiting period to rent, buy a smaller new HDB flat, or down-grading from private property, to take into account the financial plight of applicants.
I hope that the HDB’s policy review, will follow the U.S.’s focus and rationale in the F & F bailout, i.e. to help people keep their homes.
According to the article “Too many data cooks” (Newsweek, Sep 15), statistics in many countries are unreliable and may be watered down to look better.
In a sense, we may be better off in Singapore, as some of the above-mentioned remarks on statistics may indicate that not having regular break-down statistics may actually be better than having fudged ones ?
In memory of JB Jeyaretnam.
This article was written on 30 September 2008.
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