With the objective of bringing about standardization and transparency in the process of origination and documentation of the housing loan market, the National Housing Bank (NHB) had constituted a Working Group for suggesting Promotional Measures for Standardization of Housing Loan Origination and Documentation. This was with the express purpose of bringing about uniformity in the general standards for disbursing home loans and also standards required for securitization in line with international practices. The Working Group comprised of representatives from the industry which included Housing Development Finance Corporation Ltd., LIC Housing Finance Ltd., ICICI Home Finance Ltd., Can Fin Homes Limited and Dewan Housing Finance Corporation Ltd. The terms of reference for the Working Group involved detailed assessment of the various primary housing finance activities, development of yardsticks for standardization of the activities and charting a road map for implementation of the standards. The Working Group has since submitted its Report to NHB.

The main functional components of the mortgage lending process being Mortgage Product Design, Loan Appraisal and Documentation, the focus of the Working Group has been to cover the aspects pertaining to these functions. The main objective of this joint endeavour of the National Housing Bank and the Housing Finance Companies is to facilitate an environment in which originators can maintain “investment” quality in their portfolio so that it becomes attractive for securitisation. The intention of the exercise has been, inter-alia , to suggest an objective treatment of the applicant borrowers thus leading to better confidence in the lending system by borrowers and hence increased volumes. The confidence of investors in the secondary market would also be enhanced adding to its development.

NHB has uploaded the Report in its website www.nhb.org.in and has invited feedback/suggestions on the various issues outlined in the Report from all the participants in the housing finance industry.

Standardization will enable uniformity and greater transparency in the system and is expected to lead to creation of uniform database in respect of home loans to be securitised, which in turn will facilitate removal of inconsistencies presently existing in the residential mortgage securitisation process. It is also expected to foster efficient levels of collaterals/credit enhancements in the securitization structures thereby leading to reduction in costs. This in other words, is expected to facilitate securitisation on a larger scale simultaneous with reduction in cost.

New Delhi April 25, 2005

(P.K.Gupta) Chairman and Managing Director