Housing Bank

Housing Bank

A government-owned or -affiliated lender that makes home loans directly to consumers.

With minor exceptions, government in the U.S. has never loaned directly to consumers, but housing banks have been widespread in many developing countries. In the first two decades after World War II, about 50 housing banks were formed in the same number of countries. At various times over the years I have had occasion to visit and consult with institutions of this type in Iran, Ethiopia, Indonesia, Pakistan, Portugal, Thailand, Brazil, and Fiji.

With one exception, these housing banks have been a disaster. Some have been terminated while others are looking to privatize.

One of the major problems of the housing banks has been high default rates. In some cases, half or more of the borrowers don't
repay their loans. Instead of administering “revolving” loan funds, where loan repayments plus interest provide the funds for new
loans, the housing banks have needed continuing cash infusions by the government. This is a major reason why governments have become disillusioned.

Chronically high default rates reflect poor loan selection practices and poor collection practices after the loans are made. With private lenders, the dominant criteria used to determine whether or not to make a loan is the likelihood of repayment. With government lenders, politics and favoritism are often involved in a major way. This is especially likely when loan rates are below the market and therefore a bargain, which is often the case.

When housing banks operate side by side with private banks, the housing banks are subject to “adverse selection.” The private banks who turn down loan applicants because of bad credit histories refer the applicants to the housing bank.

Housing banks also do very poorly at loan collections. In many cases, their loan collections systems are so poor that borrowers who stop paying do not receive a delinquent notice for six months or longer, by which time it may be too late to remedy the situation.

In dealing with delinquent borrowers, furthermore, housing bank officials usually shrink from exercising the ultimate sanction, which is to take away their house. It isn't their money, so why should they take the political heat? As a consequence, borrowers learn that they can get away with not paying and word gets around. In many cases, the distinction between a loan and a government grant becomes blurred.

The Housing Bank of Thailand is the exception to these comments because it has been well managed, its loan default rates have been comparable to those of private banks, and it has grown without need for continuing investment by the government. The secret of its success is that the government granted it virtually complete autonomy to operate in essentially the same manner as a private bank. The only major difference has been that dividends have been paid to the government rather than to private shareholders.



References in periodicals archive ?
The Central Bank usually funds the housing loans through the Public Housing Corporation, which is under the umbrella of the Social Affairs Ministry; and the Housing Bank, which is controlled by the leading commercial banks and the state.
India-based Capital First, backed by US based PE firm, Warburg Pincus, said that the Indian regulator, National Housing Bank (NHB), has approved the merger of the company, along with Capital Home Finance and Capital First Securities Limited, with IDFC Bank.
Summary: Chennai (Tamil Nadu) [India], Jan 23 (ANI): Leading Public Sector Bank (PSB), Indian Overseas Bank (IOB) on Tuesday announced a Memorandum of Understanding (MoU) with National Housing Bank for implementation of the Rural Housing Interest Subsidy Scheme (RHISS) of the Ministry of Rural Development.
Two Iranian ministers have announced the government's intention to turn the country's Housing Bank into a development bank.
Request for Proposal are invited for Selection of agency for providing Security Services to National Housing Bank.
Amman, May 28 (Petra) -- The Housing Bank was awarded the "Arab World's Leading Bank in Financial Inclusion", presented by the World Union of Arab Bankers, on the sidelines of the Arab Banking Conference 2016, organized by the Union of Arab Banks in Lebanon.
The Housing Bank has achieved a growth in profits of 5.
Documents to get from the Project's offices at Housing Bank buildings.
Tunis: Oman Housing Bank (OHB) has signed an agreement with the Arab Fund for Economic and Social Development (AFESD) for a loan facility of OMR55 million to partly meet the annual loan programmes provided by the housing bank.
Bank Sohar, now in its seventh year of operation in Oman, recently signed a MOU with Oman Housing Bank (OHB) to provide preferential Housing Loans to Omani Citizens.
Muscat, Sept 8 (ONA)--Oman Housing Bank (OHB) has approved during the period from August 14th until September 5th this year, 302 new loans worth RO.
7 February 2012 -- Jordan-based Housing Bank for Trade and Finance said on Monday its 2011 net profit gained 13% on the year to JOD100m (USD141m/EUR108m), driven by robust commercial and retail banking operations.

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