DEFAULTERS OF HDB MORTGAGE LOANS

Column: 905

DEFAULTERS OF HDB MORTGAGE LOANS:

(Assistance to home owners): 6.

Dr Lim Wee Kiak asked the Minister for National Development in light of the current economic environment (a) how many home owners have defaulted on their HDB mortgage loans over the past five months compared with a year ago; (b) what is the Ministry doing to help these home owners tide over their financial difficulties; and (c) will the Ministry relax its policy on compulsory acquisition of these homes under the current economic circumstances.

The Parliamentary Secretary to the Minister for National Development (Dr Mohamad Maliki Bin Osman) (for the Minister for National Development): Mr Speaker, Sir, as at October 2008, there are 33,000 flat owners owing HDB arrears of three months or more. They make up less than 8% of the 420,000

Column: 906

households with outstanding HDB loans. The number has remained relatively stable over the last one year.

Lessees in financial difficulty may apply to HDB for temporary reduction of their monthly loan payments. This is to give some time for them to work out a sustainable solution to their financial problems. However, it is not in their interest to stretch the loan payment reductions over too long a period, as the mortgage debt will continue to increase due to interest accumulation.

Therefore, lessees in financial difficulty need to be realistic about their financial circumstances, and consider long-term sustainable solutions. For example, they can sublet a room to generate additional income, or downgrade to a smaller, more affordable flat. HDB will assist on a case-by-case basis, for example, by providing another loan to help the lessees downgrade.

However, there are lessees in mortgage arrears who are unwilling to work towards a long-term sustainable solution, even after HDB has provided ample time, assistance and advice. Their arrears continue to accumulate and their flats run the risk of falling into negative equity. In these cases, HDB has no choice but to initiate compulsory acquisition of the flat. Otherwise, the lessee will be settled with heavy debts even if he were to sell his flat.

I would like to assure the House that compulsory acquisition is considered only as a last resort, after all other avenues have been exhausted. HDB lessees facing financial difficulties with mortgage payments should work with HDB early on a long-term solution.

Dr Lim Wee Kiak (Sembawang): Mr Speaker, Sir, I would like to ask the Parliamentary Secretary four supplementary questions:

Column: 907

(1) At our weekly MPS, we have been seeing an increasing trend of cases of mortgage arrears approaching the MPs for help. I would like to ask the Parliamentary Secretary what is the projected trend in terms of HDB mortgage default as our economy goes into this expected prolonged recession for the next few quarters, judging from the past experience that the Ministry has.

(2) What is currently done now to assist those who are affected? Is there a joint inter-ministerial committee between MCYS as well as MND to look into temporary housing for some of these who are going to be displaced by compulsory acquisition or when they are unable to repay their debts?

(3) Will the Ministry consider building temporary or interim housing for the homeless? One suggestion is to use unoccupied Government buildings such as unoccupied schools and converting them into interim housing to house our homeless rather than foreign workers at this point in time. I think Singaporeans come first.

(4) Last of all, instead of compulsory acquisition, will the Ministry consider reviewing the current reduced mortgage repayment scheme to make it a little bit more attractive and stretch it a bit more flexible, especially for the next few quarters for those who are retrenched?

Dr Mohamad Maliki Bin Osman: Sir, I thank Dr Lim for his supplementary questions. I think we understand that Singaporean home owners are concerned about the uncertain economic outlook and the issue of mortgage arrears has surfaced in many of our MPS.

But let me just reiterate a point first. Compulsory acquisition is the last resort. It is not the first action that HDB takes.

Column: 908

HDB helps all home owners to manage their mortgage payments. I think, at the end of the day, as the Minister mentioned earlier, the policy of HDB is home ownership. We do not want to be in a situation where we encouraged home owners to have their own homes and later on work towards displacing them. That is not the idea at all. Sir, that is really to help home owners manage their mortgage payments as they go along. But given the economic situation, sometimes they do face difficulties. So what do we do with some of these home owners? Let me go from the fourth question upwards.

First is the issue of reduced repayment packages and what we can do to help them. There are two broad possibilities. One is really we offer them reduced repayment schemes. We can offer them up to between 25% and 50% reduced repayments for six months' period, to be reviewed, and sometimes we go all the way to two years. Two years is quite a long time for them to manage and to look and find longer-term solutions. But I think at the end of the day, we must emphasise and tell the residents that it is better for them to look for long-term solutions rather than look at short-term repayment. The short-term reduced repayment scheme is really for them to tide over this difficult period. It is for those whom we assess as possibly having the ability to improve their economic circumstances again so that they can subsequently continue and get back on track to their mortgage payment plans. For those who possibly have difficulty in the longer term, I think finding longer-term solution is a better option.

What are the longer-term solutions? Really, if they cannot manage the monthly repayment – I will cite the cases later – where the monthly instalment is almost equivalent to the income that they have today because of retrenchment, because of reduced income, it is really not tenable for them. If we assess that within the next six months or a year they may not

Column: 909

have the ability to raise their income level back to the original sum, then they should sell the flat, buy a smaller flat that is more affordable with the mortgage payment lesser than the previous mortgage payment. So I think working with them very closely and finding all these long-term solutions will be a better option than really looking at extending short-term solutions for them.

Next on the issue of interim housing. As I mentioned earlier, less than 8% of these mortgagees or home owners are facing some of these arrear problems and many of them are having mortgage arrears of between three and 12 months and some are above 12 months. For many of them, we can actually find solutions for them. Even after they sell their flats, there are possible solutions for downgrading. Interim housing is really the last option. We are considering some of the options and possibilities, but we do not envisage a situation where we have a large exodus of displaced individuals and families where we need to house them in temporary housing, like unused Government buildings or schools.

I think we want to work towards a situation where we find solutions for them. There are interim measures. We do have situations where such families are placed in sheltered homes but really these are small and far in between. As far as we are concerned, before we actually take any action against them, we find all these alternative solutions.

Let me just give Members some examples of what HDB has been doing to help some of these families. I think some of these families are quite similar to the kind of cases that Members of the House would be familiar with. One case, the lessees fell into arrears a month after their purchase of the flat because the husband lost his job. It was probably during the economic downturn previously. To help

Column: 910

lessees tide over the financial difficulties, the Branch Office allowed them to pay a lower instalment under the reduced repayment scheme which I talked about earlier, on three separate occasions. This meant that they had difficulties along the way. In 2001, 2004 and July 2005, there were different situations where we actually assisted them with reduced repayment. However, the lessees still could not cope with the mortgage payments.

In February 2007, that was the beginning of a crisis situation for them. They were adjudicated as bankrupts. The wife subsequently was discharged from bankruptcy. The Branch Office then gave them ample time and opportunities to resolve their arrear problems to no avail. They had difficulties along the way. So to prevent the arrears from accumulating, approval was obtained in January 2008, some seven years later. They started having problems in 2001, only in January 2008 we obtained approval to compulsorily acquire the flat on grounds of mortgage arrears. The mortgage arrears would have already accumulated significantly to the point that we assessed it is better for them to find a more long-term solution. So compulsory acquisition (CA) notice was served on 11th February 2008 this year. After the notice of intent was served, lessees agreed to sell the flat. So they finally agreed to find a more long-term solution so that they can get a better price compared to the compulsory acquisition compensation amount. The CA compensation amount at that time was about $142,000, but they were able to sell the flat at $194,000. So currently the lessees are undergoing the resale transaction scheduled for early next year. In the meantime, they have agreed to stay with their relatives before they purchase the next flat. So that is one example of how HDB has over the years worked very hard, on a case-by-case basis, to assist these families.

Column: 911

Let me give an example of the second case, the case where Dr Lim talked about the potential actual compulsory acquisition. An ex-lessee purchased the flat in 1997. He fell into arrears in February 2001 because he lost his job. Although the Branch Office (BO) allowed him to pay reduced repayment or the RRS on four separate occasions, six months each, and deferred his mortgage payment, once from 2001, he still could not cope with the mortgage payments. The ex-lessee actually sublet the flat but did not use the rental income to pay for the mortgage payments. He remained uncontactable and BO was unable to refer him to CDC for job matching and other forms of assistance. So to prevent further accumulation of the mortgage arrears, approval was obtained in July this year to compulsorily acquire the flat. The title of the flat was revested in October this year and the lessee is still not contactable. BO is scheduled to recover the possession of the flat at the end of this year.

The point I am making is that there are solutions and we will continue to work with the individual cases. So while we talk about the short-term solutions, let me just quickly run through some of the possible longer-term solutions for these lessees. First, it is that we can look into the possibility of refinancing the loan by including eligible members of the family. Some lessees ask whether they can wait for half a year or one year because their older children would be finishing their tertiary education and would be able to be part of the repayment plan and we allow them. One possibility is to extend the loan if they have not reached the maximum period. So, at the end of the day, Sir, we will continue to try to help lessees who have difficulty with the mortgage arrears, especially during a difficult time like this.

On Dr Lim's first question on the projected trend, I think previous downturn showed us that at the end, if we are able

Column: 912

to manage the situation, the arrear levels would not exceed the current situation that we are facing today. We will continue to monitor closely the situation and how we can assist these families. We will help them right from the very beginning. The moment we see that the arrear is starting to accumulate, we will respond. And we appeal to all the residents, the lessees, the home owners to respond to the efforts by HDB officers. Often times, they do not respond and allow the arrears to accumulate before they finally decide to come forward.

Ms Irene Ng Phek Hoong (Tampines): Sir, according to feedback from residents, sometimes it is the HDB officers that are not responding to calls that they made to the number provided. Can I ask the Parliamentary Secretary to please look into this?

The other question is on the issue of downgrading and getting a rental flat. What happens is that when HDB wants to compulsorily acquire a flat, the residents want to find a way to go to a rental flat but usually the answer has always been "there is a long queue for rental flats and therefore you can't have one", or "we might consider your case at a future time when there are flats available". But the situation is when their flats are already acquired by HDB, then what is the option for them?

Dr Mohamad Maliki Bin Osman: Sir, let me respond to the first part of the question, which is responses by HDB officers. We have 420,000 households that are having outstanding loans and it is a massive programme, and HDB officers work very hard to try to respond to each and every case. And I appeal to Members' forbearance as far as HDB's responses are concerned. But we will try to reach out to every resident as far as possible.

On the issue of rental flat, rental flat is really one of the options. A lot of times

Column: 913

lessees see it as the only option. So when HDB officers counsel them and look at the alternative solutions, often times we look at what is the next possible solution. Sometimes when they sell the flat, they have the ability to actually downgrade. There are proceeds to the sale of their flat, and the proceeds may allow them the potential to own another flat. HDB may be prepared to give them another loan but the loan that may be given to them is actually not sufficient due to their low income. So what we tried to tell them to do is, "Let's look at your other options. You may not be eligible for rental flats because you do have proceeds, you are not totally low income." Sometimes they do have income of more than $1,500, which means that they are not eligible for rental flats. So what are the options?

First, they may be able to rent in the open market, which is less favoured by many people. Second, really I think we should start talking about the possibility of getting support from their extended families, and many of the lessees actually do get support from their extended families. They live with their extended families for a while, save up so that they can get enough savings to be able to pay for the next flat or improve their income level so that the loan that HDB is prepared to give is higher and that will enable them to purchase the next flat.

So, the point that we are trying to make is to make sure that every lessee understand and go through that process with the HDB officer on all the different options. Often times, the option that HDB presents to them is not their preferred option. Because certainly their preferred option is a simple rental flat which is heavily subsidised, but we have a lot of issues with subsidised rental flats as we had talked about before in this House. We talked about the fact that their numbers are limited, we talked about the

Column: 914

fact that we want to focus and target subsidised rental flats to the really needy who have not obtained subsidies before. So I think it is not about just looking at rental flats as the only option. It is one of the options, but let us look at other options that are more viable for them too.

Mr Speaker: Mdm Cynthia Phua, last question.

Mdm Cynthia Phua (Aljunied): I thank the Parliamentary Secretary for his comprehensive answer and I want to congratulate him because he has really taken care of those cases that we have put to him. But in every MPS, we have at least four or five cases coming to us. By the explanation given by the Parliamentary Secretary, we would have resolved most of these cases. Unfortunately, we still see all these cases, at least four or five cases every week. I would like the Ministry to look into it seriously. We agree and we support the Ministry that we should not have fully subsidised flats for all families. But can the Ministry really look into this – whether we could have different levels of subsidies of rental flats for residents? In most of the cases, they cannot afford to even downgrade. Where

do you want them to go? Even with his solution, as I say again – you ask every Member here – you will see many cases that are asking for alternative housing. Do we have them? I think it is a big question mark.

Dr Mohamad Maliki Bin Osman: The question is really what are the solutions we have for some of these families. I think we are working towards multi-pronged approaches. The reason why some of these families get into difficulties, is really sometimes, at the onset, they might have not made their calculations right. They might have bought flats which are beyond their ability, given the economic circumstances or their reduced income.

Column: 915

What do we have for them? I think one of the solutions we have is for them to downgrade. The concern of many MPs really is the supply of smaller flats for them to downgrade to. We are looking into that, as the Minister had mentioned in his earlier response, and we are actively freeing up the supply of our smaller flats, including 2-room flats and 3-room flats.

At the same time, when we talk about the solution, we are talking about MPs coming to us all the time. We all also acknowledge the fact that there are many appeals and your own experiences tell you that many appeals come through HDB. And it takes a while for us to process each and every appeal, and for us to micro-manage each appeal is really an arduous process. So, I beg the forbearance of Members to appreciate that it is not an easy task to help families go through that whole process.

At the same time, families do have their own expectations and their own preferred solutions. Like we say, in our assessment, sometimes the preferred solution is really not what they want or what we think is doable for them. So I take the point about alternative rental housing, whether we can differentiate the rentals as well as subsidies are concerned. I think the whole principle behind it is really how do we allocate Government subsidies to Singaporeans today. The structure is that you get subsidies through the housing ownership policy or through the rental policy. If you have obtained one subsidy, you have differentiated levels of subsidies subsequently. And if you have obtained two subsidies, then it is fair for you not to have further subsidies unless it is really an extenuating circumstance. I think we can continue to study the issue of how we allocate subsidies. But at the end of the day, we have to ask ourselves how much subsidies do we want to give Singaporeans, to what extent do you

Column: 916

want to give subsidies to Singaporeans, at what point do we actually stop and say, that is it, I think you have benefited and let us find other solutions for you.