Banks need to be transparent on housing loan

STANDARDISING and simplifying housing loan documents is a step forward. Kudos to Pemudah (Special Taskforce to facilitate business), Bank Negara and the Association of Banks in Malaysia (ABM). It will be an excellent move to reign in the rogue banks, financial institutions (FIs) and development financial institutions (DFIs).

The National House Buyers Association (HBA) views the recent standardisation of loan agreements for housing loans below RM500,000 positively. For many years, HBA has been calling for greater protection for house buyers when they buy from developers and for borrowers when taking a housing loan.

As a typical housing loan ranges between 20 and 30 years, borrowers are stuck with the terms and conditions (T&Cs) of the housing loan for a long time. Unfortunately, most borrowers do not really understand the T&Cs of housing loan, as:

(i) The loan agreements are lengthy, running between 20 and 30 pages;

(ii) They are filled with legal terms and jargon that even borrowers with a law degree will still need their legal dictionary for reference.

Even for borrowers who are law-savvy, the loan agreement is a one-way traffic; the borrower must accept all the T&Cs or find another bank, as the banks will not vary any T&Cs. However, the scenario is the same for all banks and borrowers are at their mercy. (banks in this context includeFIs and DFIs).

Another grave injustice is that the cost of legal fees for the said housing loan is borne by the borrower although the lawyer is in fact, representing the banks and on its panel, and is in no position to advise the borrower. The borrower will be required to appoint his own lawyer should he require any legal advice. But this will be futile as banks will not agree to vary any T&Cs of the loan agreements.

Standardised Loan Agreement

HBA has been urging banks in Malaysia to be fair and transparent in their dealing with borrowers. Hence, credit must be given to “participating banks” for finally agreeing to adopt a standardised template for housing loans with simplified language which is easy for the layman to understand.

Based on our quick analysis of the Standardised Loan Agreement which can be downloaded from the website of the Association of Banks in Malaysia (www.abm.org.my), the agreement does appear to contain less legal jargon and is written in a manner which is easier for the borrower to understand.

The agreement also does away with unnecessary and ridiculous restrictions that certain bank previously impose on borrowers taking housing loans, such as:

● Borrowers cannot rent out the property without the consent of the banks;
● Borrowers cannot undertake any renovations without the consent of the banks; and
● Hidden clauses which impose various hidden charges and penalties such as late payment charges on borrowers

Based on our preliminary assessment, HBA views the agreement positively and we urge the banks and Bank Negara to further improve on the following areas:

Remove the RM500,000 cap

HBA calls for the RM500,000 limit for the Standardised Loan Agreement to be removed. This agreement should be applicable for all housing loans regardless of the amount, as the nature of the housing loan is the same. Already, most landed properties in areas such as Puchong and Kota Damansara are in excess of RM500,000. Even strata-properties in locations such as Bandar Utama, Ara Damansara are already in excess of RM500,000. Why not extend the coverage to all housing loans per se?

All industry players must adopt the standardised loan agreement

It would appear that the standardised loan agreement is being used by certain participating banks on a voluntarily basis and not all commercial banks which give out housing loans are adopting this agreement. Why is this the case? Bank Negara should compel all commercial banks to adopt this standardised agreement. In addition, non-banking Institutions that give out housing loans, such as DFIs, insurance companies must also be compelled to adopt the agreement. Why shouldn't the house buyers offered similar protection here?

Non-members of ABM such as DFIs include Bank Islam, Bank Muamalat, Bank Rakyat, Agro Bank, Bank Industri, Bank Simpanan Nasional and EXIM Bank which are formulated under their respective legislations.

Remove unnecessary fees and charges imposed on borrowers 

Certain banks currently impose unnecessary fees and charges on borrowers when they request for bank statements which are needed when sthey want to settle/refinance their housing loans, or when making EPF withdrawals to reduce their housing loans. While the fees of up to RM50 may not seem much to some people, it still is an exorbitant amount as it cost banks next to nothing to produce such statements. Moreover, it is the borrowers' right to settle/refinance the loan and/or to make EPF withdrawals to reduce their loans. A bank statement showing the principal sum outstanding is required to facilitate such transactions.

By imposing fees of up to RM50 to prepare such simple statements, banks are blatantly taking advantage of their customers as they have no choice but to pay the charges just to ensure that the transaction goes through.

HBA is calling for banks to be prohibited from charging fees for these statement to facilitate repayment, refinancing or to make EPF withdrawals to reduce their loans. Some Banks are already charging RM10 for “reprint” of a bank statement on current accounts. Can you imagine a situation where the customer has not received his monthly bank statement for whatever reason and has to pay RM10 for a “reprint” of his own bank statement?

Banks can unilaterally vary theinterest rate

However, upon closer inspection of the standardised template, HBA noticed that a clause currently found in most housing loans has been carried forward. .

Even if the borrower had faithfully paid all his dues and installments' on time, the bank is entitled to vary the interest rate unilaterally at any time during the loan tenure. There is no such thing as sanctity of a binding contract between the borrower and the banks.

As we know, the current interest rates for housing loans are competitive, with some banks willing to go as low as BLR less 2.50%. So, what this can mean is that a few years down the road, when the banks realise that such low interest rates are no longer feasible, they can vary the interest rate from say BLR less 2.50% to BLR PLUS 2.50% and the borrower is obliged to pay the new interest rate. Furthermore, if the previous installment was only RM1,500 a month and the new installment due to the revised interest rate is RM2,500, the borrower must pay the new rate or risk the bank repossessing his house.

HBA urgently calls for Bank Negara to repeal this clause to prevent banks from having the upper hand to victimise unsuspecting borrowers. Banks must not be able to unilaterally vary the interest rate if the borrower had not defaulted on his obligations' under the loan agreement. Banks may say that they will not normally invoke/exercise the said clause. But, covenanted terms and conditions are binding upon both parties.

Lawyers have to purchase standard forms from banks

Nowadays, law firms undertaking banks' work have to purchase standardised pre-printed forms from banks. The price ranges from RM150-RM350. Would printing cost be so expensive or are banks making a profit or “mark-up” from such sales to law firms?

Such “expenses” are nevertheless passed down to customers/ borrowers as disbursements. Couldn't a “soft copy” be made available to law firms to adopt and print at their own cost and expense? Printing charges are only limited to RM50 as approved by the Bar Council.

Apportionment of payment to interest and principal shrouded in secrecy

Another grave injustice to borrowers is the allocation of monthly installments towards the settlement of principal and interest as this is not disclosed anywhere in the Loan Agreements' or even in the Standardised Template.

To illustrate a real life example, we had a complainant who took a 20-year housing loan about six years ago. After diligently paying his loan for five years, the complainant assumed that the principal amount outstanding should only be about 75% of the original amount. Unfortunately, the complainant had personally experienced, the amount was closer to 83%.

There need to be greater transparency on how the allocation of monthly repayments for interest and principal is done and this must be disclosed in the loan agreement. Moreover, the allocation must be done on a “straight line basis” so, after paying five out of a 20-year housing loan, the principal outstanding must be 75% of the original amount.

Conclusion

HBA calls for banks to continue to take cognisant of their borrowers' hardship and protect the interest of their borrowers instead of just focusing on profitability. Without the borrowers and customers, banks will not have any profits to show.

HBA also calls on Bank Negara to continue the close monitoring of banks to ensure that they do not take advantage of borrowers. The battle of borrowers against banks is akin to David vs Goliath. Timely intervention from Bank Negara is needed to balance the scale of power.

BUYERS BEWARE
By CHANG KIM LOONG

Chang Kim Loong is the honorary secretary-general of the National House Buyers Association, a non-profit, non-governmental organisation purely manned by volunteers. You can log in to www.hba.org.my

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Leaving a financial and parenting legacy

BEING a parent is a challenging job. It's a job that requires lifelong commitment, and you cannot resign from it even if you feel you can't cope. And what's more, parenting requires skills that are not obtainable from school, college or university. Parenting and managing money are the two most important skills that we learn from our parents or adults with whom we grew up, be they our grandparents, nannies or guardians.

As you go through the process of considering how to communicate with your parents and siblings about managing family wealth, you will realise the need to teach your children about money so that you are able to leave your own legacy behind for your children to communicate and manage money harmoniously as a family.

There is really not one proven or standard method of parenting and teaching children about money because of different personalities, behaviours and attitudes. We teach children about money based on how we were taught about money by our own parents or guardians, and from the environment in which we were brought up. Recall your childhood days, and how your parents taught you about money. Were you taught to save your pocket money or to spend it wisely?

Think about the environment you grew up in. Were there times when your parents had money problems and you often heard them argue about it? Or did your parents hide the fact that money was hard to come by in the family? Or were you pampered by your parents with toys, clothes and going out for fun activities and holidays?

Some parents have told me that because of the poverty they experienced during their own childhood, they now try their best to give their children a better life by lavishing them with the material goods and experiences that they themselves never had. By indulging their children, they are not allowing their children to experience financial responsibility.

Different parenting styles

While most parents learn parenting skills from their own parents or by observing others, they will accept some practices and discard others. Effective parenting requires interpersonal skills that can create some emotional demands. Experts in early childhood development say an important dimension of parenting is the style parents adopt when they interact with their children. According to Maccoby and Martin's parenting style typologies, there are four different parenting styles. Depending on the child's character, different parenting styles lead to different results:

1) Authoritarian parenting is a restrictive, punitive style in which parents exhort the child to follow their directions. The authoritative parent places firm limits and controls on the child, and allows little verbal exchange. These parents tend to be very strict and may control the children by limiting their wants and desired wants. In this case, the children may either grow up to rebel' by spending beyond their financial means to fulfil their childhood desires, or they may become very good at managing their money.

2) Nurturing parenting is a style that encourages the child to be independent but still places limits and controls on the child's actions. Extensive verbal give-and-take is allowed, and parents are warm and nurturing towards children. These parents often communicate and teach their children to spend their money wisely by explaining to them the importance of money.

3) Neglectful parenting is a style in which parents are uninvolved in the child's life. Children whose parents are neglectful often develop a sense that other aspects of their parents' lives are more important than they are. Children who grow up in this environment are often deprived of parental love and a sense of belonging in the family. As a result, they may grow up spending lots of money to fulfil their need for love from friends, and from their life partner. Or they may spend money to boost their self-esteem because of the lack of parental love.

4) Indulgent parenting is a style in which parents place few demands or controls on the children. These indulgent parents will let their children do what they want. Children with indulgent parents may often be spoilt by a variety of material things or an impressive lifestyle. The spending behaviour of indulgent parents may condition the children to spend more than they need or more than they can afford when they grow up.

Imagine a situation where the father is indulgent towards a child and provides gifts, toys, fun and pleasure, while the mother, on the other hand, is a disciplinarian with strict rules about gifts, toys, fun and pleasure. Who will the child prefer to be with, and who will the child learn more from? You and your spouse should decide on a best way to handle your children's money expectations. It is important to be consistent and fair to lessen potential family strife.

Communication

According to experts of child psychology, even from a tender age of 2 or 3 years old, a child learns by observation, and from conversations and experiences they have with adults. Hence, effective parenting warrants a tremendous amount of proper learning methods and communication skills. Understandably, today's parents are faced with more issues compared with their parents; the fact that today's younger generation is growing up in an era of media influence, technology advancement and the Internet makes parenting an even more challenging job.

It can be painful for parents to discipline and teach children about saving money, particularly when their children are easily influenced by their friends even as pre-schoolers. This is further compounded by the barrage of advertisements on television and online media that tempts your children with attractive toys, pretty clothes and accessories.

It does not really matter how much money you have or how much joy you derive from showering your children with material things. As parents, you have got to show some restraint and boundary. You don't have to feel guilty about scaling back on spending for your children. Your children may already have more than they need more clothes and shoes than they can wear, toys and games than they have time to play with.

Be mindful that while you are conscious of good money habits for your children, you need to ensure that your children's grandparents, godparents, aunties, uncles, or other adults around them do not indulge them too much with gifts. This may send your children the message that if they cannot get what they want from you, they can get it from them.

Family values 

In some situations, a couple may bring different views and values about money and parenting to the marriage. Because of personality, character, family and life experience differences, couples do face conflicting personal and family issues where money is concerned. Therefore, teaching a child about money really begins with teaching your child about the importance and meaning of life values as a family.

Honesty, integrity, teamwork, helpfulness, trust, love, family support, accountability, unity, filial piety, commitment, communication, sharing, spending time with parents and siblings are some of the most important family values that your children ought to know, even if they may be younger than six years old.

Constant messages to your children about how good family values are important in life, and that money cannot buy such values, are more important than parental love expressed in the form of material things for your children.

Teaching them important life values and let them know that money is a means to an end, and not for self-gratification.

Other than sending them to school to gain knowledge and social skills, the money skills that you teach your children from an early age are the most important life education you can provide them with and it actually starts at home. It is as simple as how you and your spouse manage money and communicate about money at home. Your good money skills will rub off on your children.

May this be your new resolutions for teaching your children good money sense!

MONEY & YOU By CAROL YIP

Carol Yip, founder of Abacus For Money, believes that if people understand their money mindset, behaviours and money psychology, they can be financially happy and successful. She actively promotes financial literacy and intelligence within families and for women, youths and retirees.

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Malaysian banks optimise depposit rates and lending

PETALING JAYA: Competition for fixed deposits (FDs) is set to continue as banks eye new liquidity by offering better interest rates to depositors following the postponement of the Basel III liquidity requirement rules. Industry analysts said banks would also likely optimise their lending ability moving forward.

Ambrose: ‘Malaysia has a well-functioning banking system while Europe does not and the US barely does.’

“It's not good to be too conservative in lending. It is important for the overall economic wellbeing of the country and it gives life to businesses, bringing prosperity to the country,” said a banking analyst from one of the four largest local banks by asset size.

According to Gerald Ambrose, the managing director of fund management company Aberdeen Asset Management Sdn Bhd, the stricter Basel III requirements to ensure banks are well capitalised may not be too suitable for Malaysia which presently has a well-functioning banking system.

“Malaysia has a well-functioning banking system while Europe does not and the US barely does. I think capital requirements that are too strict may potentially stifle economic activities,” Ambrose told StarBiz over the telephone recently.

Commenting on recent banking statistics, RHB Research in a recent note said the November 2012 system statistics showed loans growth had eased to 11.2% year-on-year (y-o-y) from 11.8% y-o-y growth in October 2012.

“The slower pace of growth was attributed to higher repayments during the month, partly mitigated by stronger disbursements. Meanwhile, household loans continued to expand at a steady pace of 11.6% yoy,” RHB Research analyst David Chong said in the report.

Chong noted Nov 2012's total system deposits grew 11.3% yoy with this growth being broad based' with loans to deposit ratio unchanged month-on-month (m-o-m) at 81.6%, the system core capital ratio was at 13.4% and risk-weighted capital ratio stood unchanged m-o-m at 15.3%.

According to Alliance Research banking analyst Cheah King Yoong, these statistics showed the domestic banking system remained “well capitalised” and “resilient to withstand unanticipated shocks to the financial system, if any.”

Cheah added that lending activities did not pick up towards the end of 2012 which could be due to both lenders and borrowers turning cautious with the impending general election which is widely expected to be held in March.

“We reiterate that there could be two potential de-rating catalysts, which pose downside risks to our 7-9% loan growth forecasts for 2013.

“These are (that) lending activities could decelerate in the first quarter of 2013 with slowing corporate loan disbursements and consumers turning cautious pending the upcoming general election,” Cheah said.

“Post-election, should the federal government implement (the) goods and services tax, resume its subsidies rationalisation programme and raise the electricity tariff to close its budget deficit; these fiscal tightening policies could have an adverse impact on consumer spending and consumer loans in the later part of 2013,” he added

By DANIEL KHOO danielkhoo@thestar.com.my

 

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