NHB is considering a proposal to allow lenders to provide up to 90% of the property value as home loan.

As per a leading financial daily, the National Housing Bank is considering a proposal to allow lenders to provide up to 90% of the property value as home loan. The proposal is meant for loans above Rs 20 lakh with a mortgage guarantee cover. A mortgage guarantee cover is nothing but an insurance policy which compensates lenders or investors for losses in the event of a mortgage loan default. Under such an arrangement, a housing finance company enters into a contract with a mortgage guarantee company at the time of loan origination.

Higher loan to value ratios backed with such guarantees are expected to boost the growth in the housing finance space. More importantly it's a win-win situation for the parties involved. That's because it's a margin driver for the housing finance company. And such a mortgage guarantee-backed securitization deal favours the lender who bags the deal. For bankers seeking to meet the priority sector targets, such mortgage guaranteed deals come to their rescue. Above all, it's the borrower who stands to benefit significantly as he would be able to avail a loan of Rs 90 lakh against a property value of Rs 1 cr, for instance. But on the flipside, the risk would be any compromises in due diligence, checks of creditworthiness of borrowers, fluctuation in interest rates, meltdown in real estate prices, amongst others.