The other promoters the Canada Mortgage and Housing Corporation (CMHC) and the Canada-based United Guarantee Company (UGC) will hold 24 per cent each, while the Asian Development Bank (ADB) and the International Finance Corporation (IFC) will hold 13 per cent each.
ADB has already finalised its decision to invest up to $10 million in the proposed company. The ADB board has, on November 26, approved its investment decision, while the IFC board is expected to finalise its plan shortly, a source associated with the developments told FE.
Confirming the development, NHB executive director RV Varma said: The initial investment of the promoters will be decided on a pro-rata basis. That means initially NHB will invest $10.4 million, while both ADB and IFC will invest $5.2 million each. The other promoters CMHC and UGC will invest $9.6 million.
CMHC and UGC would lend their expertise for day-to-day operations of the company, while ADB and IFC will be the strategic partners, Mr Varma said.
A separate study team has also been constituted with representation from each of the promoters to finalise the product mix, another source told FE. The study team has recently interviewed senior officials with major housing finance companies and banks to finalise the product mix.
Accordingly, it has been decided that all housing loans above a cut-off point of loan to value ratio will be compulsorily covered under the scheme, for an upfront one time premium. The premium amount and the guarantee cover ratio are still to be finalised, the source said, adding: Once this comes up, HFCs and banks can lend even up to 100 per cent of the value of properties.
The company would help protect primary mortgage lenders HFCs and banks in case of borrower default. With the setting up of the company, the risk of default has effectively shifted to another entity, and lenders will be able to improve their loan provisioning requirements, thereby permitting a greater volume of mortgage lending in the market. This would also help them extend the tenure of loans to up to 25 years or more instead of the current average of 15 years, and improve the return on capital to the mortgage lender.
HFCs and banks would be in a position to invoke mortgage insurance if a borrower fails to repay the loan. This scheme would also benefit homebuyers. The so-far neglected semi-urban and rural sector, business class and self-occupied persons would find it easy to get housing loans, once the company becomes operational, the source added.
Initially, it was decided to float the company with the help of CMTG the the apex body of the housing sector in Canada. Later, UGC has also been considered as it has good exposure in the international market in offering mortgage insurance schemes, Mr Varma said.