Jan 2, 2007: The home loan market is ready to be restructured.. Think in terms of interest rates or bank's policies, for the past few months we have been observing regular changes in housing finance sector in India. The method used to market the home loan schemes through direct selling agents (DSAs) commissioned by banks or housing finance companies (HFCs) may be diminished totally. In fact, the National Housing Bank (NHB) is planning to have proposed replacing the army of DSAs with professional home loan counselors.

This issue was discussed at a recent NHB (National Housing Bank) meeting with Home Finance Banks and Housing finance companies. NHB proposed the creation of a common forum of banks and HFCs, which can serve as a self regulatory organization in the housing sector managed by professional home loan counselors. Home loan DSA does not follow any standards and there is no uniformity in the advice given by them, they simply mislead the person in seek of charging high fees and ROI from them. In lack of quality advice, people have begun to loose the trust and accountability on these DSA's. NHB noted in its agenda for the meeting that professional advice is also required for those who want to buy new dwelling units without availing of loans.

Significantly, customer protection has been on top of the Reserve Bank of India's agenda as well. RBI governor YV Reddy has already underscored the need to promote fairness in home loan marketing practices and safeguard borrowers' interest.

The three major mortgage markets in the world, namely the UK, the US and Australia follow very specific practices for customer protection. There are several other Federal and state laws which compelled home loan originators to disclose their lending practices to customers and the general public. After studying these practices in details, NHB has drafted a dossier of "roles and responsibilities" for the mortgage counsellors and has also fixed a minimum eligibility criteria for them.

It felt that these new initiatives would ultimately protect customers. In fact, Indian Institute of Banking & Finance (IIBF) has already been assigned to administer a comprehensive professional test for prospective mortgage counsellors. "We've already prepared a special course and examination plan for home loan counsellors," IIBF chief executive officer

The NHB agenda feels the proposed system will not only enhance fairness and transparency in housing loans, but will also be a good service to borrowers and mortgage originators as well. Although things are yet to be finalised, preliminary discussions came to the conclusion that either NHB or the proposed SRO will accredit home loan counsellors and this accreditation will remain valid for two years.

The counsellors' fees would be borne by borrowers and NHB would announce the fee structure periodically. The examination, selection and appointment of the professional counsellors could be overseen by SRO, and the system could be evolved along the lines of what has been developed by the Association of Mutual Funds in India (Amfi) or the Fixed Income Money Market & Derivatives Association of India (Fimmda).