When a mortgage becomes a millstone

Source : Today - 5 Mar 2009

Three years ago, Mr Gurdev Singh was working in a security firm for a monthly pay of $1,200. The divorcee with a son, had just started dating. He and his girlfriend were thinking of starting a family, so he bought a flat.

“Six months later, we broke off. I tried ways to keep the 5-room flat. I tried my very best until I couldn’t make it,” he recalled.

Mr Singh negotiated with the Housing Development Board (HDB) for extra time to pay the loans and even tried renting out rooms in his flat to pay the mortgage. Still, he could not meet the payments.

His plight is not uncommon.

About 6,500 HDB home owners have been in arrears for two years or more.

How the HDB goes about helping such households is to first assess whether it is a short- or long-term problem, said Dr Maliki Osman, Parliamentary Secretary of the Ministry of National Development.

“For example, someone who has just lost his job, retrenched, we look at the potential of this person to quickly recover, get another job with regular income, regular CPF contributions. If the potential is high and the household is able to recover very quickly, then the solution is really for them to be assisted in the short-term period that they need help,” said Dr Maliki.

Several help measures are in place including the deferred payment scheme and the reduced repayment scheme.

HDB allows flat owners in difficulty to defer payment of loan instalments for an initial period of 6 months. The deferment may be extended for another 6 months if necessary.

Under the reduced repayment scheme, home owners with financial problems are allowed to make smaller payments of between 50 per cent and 75 per cent of their normal instalment.

They can also look at the option of subletting.

But other avenues may have to be explored when it comes to long-term financial difficulties like a homeowner without the ability to service the mortgage.

Mdm Tan Suay Yan, 52, earns $950 a month as a gardener, while her husband takes home about $1,000. They have four school-going children. In 1999, the family moved from a two-room flat to a five-room unit, which led to a monthly mortgage payment of about $1,000. She soon ran into arrears of about $200,000.

Mdm Tan admits that it was a mistake to buy the flat in the first place.

“We obviously couldn’t afford it. I don‚t know why he still wanted such a big flat. I think a bit of it was because of image and status,” she said.

Three years ago, the HDB finally told them they had no choice but to sell the flat.

“For families who have difficulties and remain unemployed for a longer period of time, the advice is not to hold on to the flat because the arrears will accumulate,” said Dr Maliki.

Mr Singh was told by HDB to downsize, but he met with further problems. “At that point in time, I couldn’t downgrade because it’s already my second loan with HDB. So there’s no third time.”

The banks also rejected his requests for a loan due to previous banking problems.

“I went down to the MP for help as well and in the end, they granted me a third time instalment with HDB, a third time HDB loan,” said Mr Singh, who can now comfortably use his CPF savings to pay the $462 monthly mortgage for a three-room flat.

In such cases, said Dr Maliki, the authorities would look at the history of the loans taken.

But he warned that it was not a given that HDB would assist all downgraders. “There are those who are downgrading because they want to monetise their assets. They live comfortably in a 5-room flat, they sell their flat, they get substantial proceeds and they want to buy a 3-room flat. Such cases are really not the financially hardship type.”