Recovery of Mortgage Loans
SBP Training Program for FIs
Objectives:
• To keep the bank’s Asset Alive, profit
making and a going concern.
• But, before launching any exercise, take
into account local governing bodies and
their obligatory instructions. These
includes;
– Prudential Regulations
– Recovery Ordinance 2001
– Circulars especially BPRD Circular No. 13 of
2008
Pre-requisites
• Close coordination among Operations
(Ops), Sales and Collection & Recovery
(C&R).
• System to be in place: Ops to immediately
email the information (MIS) on non
payments to C&R.
• Trained Staff: C&R, MIS &
Telecaller/Phone Banking.
Resposibility
• Ops: To provide reliable information (MIS)
in time.
• Sales: To help C&R recover non-paid
installments.
• C&R: To deliver a professional job
throughout/even up to the inevitable Legal
stage.
Strategy/Approach:
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•
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Pro-actively, booking quality loans/borrowers only.
As a safety measure, a ‘Code of Conduct’ (COC) on the lines of AnnexureCR1 to be approved & signed by the borrower, at the initiation of the HF
borrowing relationship/signing CAD documents. This COC document
briefly/step by step covers C&R regime to be followed by the bank in
agreement with the borrower, if the installment repayments are delayed
including recording of the critical conversations with the delinquent
borrowers for record & self defense.
Consultative/workable solution finding approach with mutual trust,
confidence & consent of the borrower.
Professional/to the point approach of not wasting any time i.e. moving to the
next/even to the legal stage if the situation is reached/appears
logical/possibility that this tactic may exert positive pressure on the
delinquent borrower.
C & R’s involvement from the very beginning/log-in stage i.e. to check &
sign on the genuineness of the references (2) details given in the
application form.
C&R regime has to be different in HF than in AF & CC, because of the
altogether different product features/business dynamics. HF, as against AF
& CC is usually taken once or twice in life and therefore demands, by both
the lending bank & the borrower, a detailed & careful scrutiny of the different
possible future economic scenarios in the course of repayment of the
facility, to avoid any untoward situation.
Action Plan:
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Pro Active Approach/Measures
Consultative Approach/Measures
Legal Stage
Litigation Stage
Auction/Recovery
Approaching Central Bankers (SBP) for
giving room/modifying the existing HF
Policy parameters in line with the
developed world.
1. Pro-Active Approach:
Following measures should be adopted, as a proactive
approach, to avoid professional lapses resulting in
difficult delinquent situations.
• Quality Loans/Borrower’s immaculate credit
history & repayment capacity.
• No overstretches; policy deviations; special
considerations & border line cases.
• Quality References (2) & Guarantors (EHF).
• Stringent Credit Processing/Parameters to ensure
quality approvals only.
2.Consultative Approach:
The bank should provide consultancy &
solutions in the delinquent situations with
complete trust of the delinquent borrowers
on
its side.
• explain/remind the borrower, in a very
polite manner, about the importance of
regular installment payments
‘X DPD’ Stage - (Telecaller + C&R
Officer):
• Casual Attitudes/Habitual: Constant follow-up &
professional interaction is required to change their
attitudes/habits.
• Temporary Financial Constraints: These situations
should be thoroughly probed & then
advice/guidance sought from the seniors on
providing a temporary relief to the genuine cases
(Principal amount payment waivers, if possible/in
Policy).
• Serious Financial Difficulties/Constraints: This
category has the strong probability to move to the
‘Default Stage’; therefore demands full attention.
Cases with serious & genuine financial
constraints
• Reprofiling/Extending the tenure to the
maximum allowed period in BAL’s HF Policy
(Presently 20 years) if there is a room for
that.
• Give temporary moratorium relief on Principal
amount repayments if that makes a
difference.
• Ask the borrower to swap his present
property with the one of lesser value to take
the advantage of a reduced debt burden.
‘30 DPD’ Stage – (Telecaller + C&R
Officer + Team Leader)
• Almost the same exercise as in above
(XDPD), except that to be more firm at this
stage as well as remind the delinquent
borrower of the consequences, if the situation
is not immediately rectified. Take support of
the ‘Annexure CR-1’ document already
signed by the borrower on initiation of the
borrowing relationship
• To put Additional Pressure by sending
Annexure CR-2
Basic ‘Code of Conduct’ (Annexure
CR-1
•
)
(To be signed by the bank & HF Borrower, at the initiation of the borrowing relationship)
This document is signed between me _______________________________ (Bank’s Home Finance Facility Borrower) & Bank ( the HF Facility
Provider) as a free & fair acknowledgement by me on the measures & steps the latter is authorized to take/adopt for recovery of overdue
monthly installments from me.
Bank is authorized to call/SMS at my following cell, office & residence telephone #s as mentioned by me also in my original HF Application
Form, during the times mentioned/specified there against.
Cell #
_____________10.00 am to 10.00 pm
Office #_____________ 10.00 am to 06.00 pm
Res. #
_____________10.00 am to 10.00 pm
(Max. 2 calls/day)
(Max. 2 calls/day)
(Max. 2 calls/day)
Bank is also authorized to record the conversation & correspond with me by SMS/Letters/Legal Notice as & when required and deemed
appropriate.
I undertake to be personally available for meetings/discussions, whenever required by Bank to resolve the delinquent situations created by me,
for whatever reasons.
If need be, Bank has the right to approach to my employers/bankers/foreign embassies, two (2) references provided by me in HF Application
Form & the Guarantors, if any, in the course of/efforts to get my loan account regularized.
I also undertake to convey my acceptance in time & writing on the new mark-up rate options offered to me by Bank on each year of completion
of the mark-up rate term. If I fail to do so in time specified, Bank has the right as well as my permission to apply the new mark-up rate on
each renewal as per similar option availed by me in the previous term.
I also hereby commit to keep Bank updated, in writing, whenever there is a change in my employment/business &/or contact details.
Annexure CR-2
September 15, 2011
Mr/Ms/Messors
…………………………………….
…………………………………….
…………………………………….
Dear Sir/Madam
Subject: Bank Home Loan Facility for Rs ………… (Outstanding as on …………...)
We regret to inform you that in spite of our all efforts as we had agreed, documented & signed together
(Collection & Recovery Document CR-1); you are not forthcoming in making regular repayments of your
monthly installments and as a result an amount of Rs …………. pertaining to your …………… installment
is now overdue by ………… days, as on date.
You are requested to please honor your commitment by making an immediate payment of the overdue
amount to your loan account # ……………………… at ………………….. & take all possible measures, in
your interest, to not to repeat this incident again in future.
Yours truly,
‘60 DPD’ Stage – (Team Leader +
Manager):
• Same exercise/efforts as above (30 DPD)
including letters/documentation & as
mentioned in the C&R Document
(Annexure-CR1) signed by the borrower at
the initiation. Letter as per text provided
(Annexure-CR3) to be released at this
stage by courier.
Annexure-CR-3
September 15, 2009
Mr/Ms/Messors
…………………………………….
…………………………………….
…………………………………….
Dear Sir/Madam
Subject: BAL Home Loan Facility for Rs ………… (Outstanding as on …………...)
This is to inform you that, unfortunately we have reached to a stage, where despite our best efforts in the light
of our Collection & Recovery Document CR-1 & CR-2, you are not complying to your commitments, with
the result that as on date, ………installment/s amounting to Rs …………. & Rs ……………. for the
month/s ………….. & ……………. respectively are now long overdue for payment.
May we bring into your kind notice at this stage that if you do not quickly address yours this overdue situation
before it is 90 days past; you will be next classified as a defaulter in the record of SBP with very adverse
consequences.
Therefore, we request you to please honor your commitment by making an immediate payment of the above
overdue amounts to your loan account # ……………………… at ………………….. & make an
arrangement, purely in your own interest, to not to repeat this unfortunate situation ever again in future.
Yours truly,
‘Legal Notice / 90 DPD’ Stage –
(Manager + Product Head)
• Same as above + release Annexure-CR4
+ Legal Notice.
Annexure CR-4
February 9, 2009
Mr/Ms/Messors
…………………………………….
…………………………………….
…………………………………….
Dear Sir/Madam
Subject: BAL Home Loan Facility for Rs ………… (Outstanding as on …………...)
By not paying your regular monthly installments & with some of them now even entering in to 90 days past
over due category; your loan account, as per our central regulators, State Bank of Pakistan, has now
been classified as ‘Defaulter’ with adverse repercussions for any future consumer finance possibility for
you in Pakistan.
We request you to please make an immediate payment of the overdue amounts and come out of this
unpleasant situation as quickly as possible. Otherwise, very soon next you will receive a legal notice from
our lawyers forewarning you start of a legal process from our side against you for recovery of our
outstanding loan amount & a possible foreclosure of the facility & repossession/auction of the Bank
Alfalah financed property as a result.
Yours truly,
Legal/Recovery Stage
• The borrower under default should be closely
followed up at the Branch level.
• Appropriate steps should be considered, as
mentioned below, with the assistance of
lawyers
• and approval of Executive Committee to safe
guard the interest of the Bank.
– To recall the outstanding Home Finance
– Foreclosure of mortgage
– Sale of mortgaged property
Recovery:
• “Fair Debt Collection” Circular
– 14 days notice before paying visit
– Show Identity card and use acceptable
business language
– Collection calls should be on recorded lines
– Borrower may be contacted on alternative
number only if there are not contacted at
given address or phone numbers
– Visit reports shall be kept in record for at least
6 months
Recovery:
– Collection staff shall not harass borrowers’
family
– However, information may be obtained from
friends/family/third party if he/she is not in
contact for 30 days after the first missed
payment
– To ensure that collection staff do not transfer
or misuse any personal data.
– Outsource recovery agencies if any, should
properly be on PBA panel.
Recovery:
– Frame code of lawful conduct for recovery
staff
– Introduce a well defined mechanism for
addressing complaints
– Undertake periodic review of policies
– Engage suitably qualified staff and provide
them necessary training
– Regularly monitor the activities of
collection/recovery staff
Conclusion/Delinquency
Reasons:
• Generally/usually there are two (2) reasons in
case of a genuine (not casual/habitual)
delinquency. One, that the mark-up
rates/repayments have become out of
reach/pocket of the borrower; two, that there was
a professional lapse in assessing the credit
eligibility of the borrower.
• Mark-up rates, on all of the consumer finance are
exorbitantly high in Pakistan as compared to the
outside world, in spite of the low propensity to
afford (income) of its consumers.