Couple sue NTUC Income over reverse mortgage deal gone sour

By Chew Xiang
(Taken from the Straits Times on 29th July 2009)

A couple are suing NTUC Income - in what is seen as a test case - over a reverse mortgage deal in which their property was sold amidst falling property prices.

Derek Chua, who is in his 70s and his wife Colleen Ng, who is in her late 50s, claim they lost their matrimonial home at Upper Serangoon in 2006.

NTUC Income demanded repayment of a loan procured in 1997 under a reverse mortgage, and the couple claim they had to sell their home to repay it, according to a writ of summons filed earlier this month and seen by BT.

The company's chief financial officer Jeffrey Lee said in an emailed statement that NTUC Income had been 'more than reasonable' in trying to help the borrowers and that the couple had been advised on the terms of the deal.

The couple claimed that the 1997 reverse mortgage valued their house at $2.1 million, and based on a loan to valuation ratio of at most 80 per cent, they were given $495,000 cash to pay off their previous mortgage and payments of up to $2,000 a month.

In May 2004, the couple were told the value of their house had dropped to $1.1 million and they were in breach of the 80 per cent loan to valuation limit, based on the outstanding loan amount of $926,000.

According to the couple, they were told to top up $46,400 to bring the ratio down to the 80 per cent limit, and their monthly payments of $2,000 were reduced in steps to $1,500 from October that year.

A year later, in October 2005, NTUC Income said the outstanding loan, at $1.014 million, exceeded the 80 per cent limit based on the property value of $1.15 million. The couple were told they would get just $300 a month until June 2006, after which the company would 'exercise (its) right to recall the property for auction sale'. The couple could also procure a buyer on their own or find another place to stay, according to a letter from NTUC Income, the couple said.

By then, the couple owed $1,045,802.91. On June 30, solicitors for NTUC Income sent the couple a letter demanding repayment or else face legal proceedings

The couple handed over possession of their property on Aug 31, according to their writ.

The property was later sold for just over $1 million, leaving an alleged shortfall of about $55,000, which the couple were asked to pay.

They claim that if not for NTUC Income's letter, they would not have sold the property - which in 2008 was again sold for about $1.5 million, the writ says.

NTUC Income has yet to file its defence.

The couple have engaged senior counsel Michael Khoo through legal aid. NTUC Income is represented by Rodyk & Davidson.

This is an interesting landmark case which will serve as a reference for those who are considering taking up a reverse mortgage. It is unfortunate that the couple took up a reverse mortgage when the property market was buoyant and had to be forced to sell their property when property prices are depressed. For a product that was marketed as a retirement tool, it is definitely not as safe as what was supposed to be. Additionally, NTUC Income is a co-operative and it is surprising that this can happen. What if the valuation of the property went up after the reverse mortgage was signed ? Will NTUC Income pay out a larger sum ? The couple would have done much better by downgrading from their property and use the proceeds to fund their retirement.

It is a well known fact that the majority of those who dabbles in the stock market is not likely to do well. As such, it will be good to invest in an index fund so that their returns is not likely to underperform the stock index. For those who wish to outperform the market instead, they will need to possess some edge which the majority of the market do not have.

The key here is that they must be doing something which the majority of the market are not doing. Now so what are some of the things that the majority of the market do that they think will help them in outperforming the market ? Some examples that help the majority of the market in making the decision to buy or sell a stock are given below.

- Analysts' recommendations on stocks

- Release of news which the market thinks that will affect the prospects of a company

- Rumours

- Perceived prospects without doing any thorough business analysis

Now if the majority of the market underperforms the stock index, then the above examples are some of the things that you should not be doing when it comes to investing.

Now what are some of the investing edges or advantages which the majority of the market do not possess ? Some examples are given below.

- Access to 1st hand information which the market do not possess yet

- Taking a contrarian approach

- Knowledge of investment tools

- Doing a thorough business analysis

Thus, if you wish to invest in the market, think about what is the edge you possess that can enable you to outperform the market and avoid doing what the majority of the market is doing.

I was looking at the yields of the SGS bonds recently and the yields are not high at all. In fact, the yields are rather depressed. As you can see from the yield graphs of the SGS bonds with different maturity periods, which are taken from fundsupermart, all the yields of the SGS bonds are near their previous troughs with some of them even breaching the previous troughs.

This is the time to put your funds to an asset class which has a high yield now and one such asset class would be equities. Unfortunately, the majority of the investors would be fleeing to bonds or cash at this point of time.

The definition of Total and Permanent Disability or TPD is generally the same with slight variations with different insurance companies. The definition below is taken from the website of NTUC Income.

Total and Permanent Disability is defined as:

i. the complete and continuous inability of the Insured at that time and at all times thereafter to engage in any business or occupation or perform any work of any kind for remuneration or profit; or

ii. Total Physical Loss.

Total Physical Loss means any one of the following:

i. the total and irrecoverable loss of sight of both eyes.

ii. the loss by complete severance or total and irrecoverable loss of use of both limbs at or above the wrist or ankle; or

iii. the total and irrecoverable loss of sight of one eye and the loss by complete severance or total and irrecoverable loss of use of one limb at or above the wrist or ankle.

Why am I bringing this up ? If you are thinking that the TPD clause in your policy will pay out a sum of money under the circumstances that you are disabled and unable to work, this may not be true. Do scrutinize the exact wordings of the definition of your policy.

If you look at the (i), it literally means that you lose your ability totally to earn any income. What about cases where you are permanently disabled but you are still able to sell tissue papers on the street or do some online administrative work from home ? You may not be able to claim under the TPD clause.

As for section (ii), notice that the physical losses that you are suffering from must be in pairs. For example, both eyes, limbs or an eye plus a limb. And if you are disabled, it may not be sufficient as the limbs must be completely severed or total and irrecoverable loss of use of limbs.

In fact, the phrase “total and permanent disability” is rather self-explanatory. Bear in mind that it is not total or permanent disability but it is total and permanent disability. A single word makes a lot of difference.

In short, it is extremely difficult to make a full claim under this TPD clause. If you still wish to preserve your income stream in the unfortunate event that you are disabled and not capable of working, take up a disability income insurance policy instead.

Don’t let your home loan haunt you
By Francis Chan
(Taken from the Sunday Times on 12th July 2009)

Nothing beats having your own pad – especially the very first home you own.

For me, it was a 732 sq ft studio in Siglap that I bought in 2005.

When I paid the 1per cent deposit for the place, everything about it was perfect. It had an unblocked view of the East Coast, nice Italian marble flooring, a spacious kitchen (yes, single men do cook) and a huge balcony.

It had all the ingredients of a picture-perfect yuppie life.

I saw myself chilling out on lazy Saturday afternoons on the balcony, whipping up al dente pasta in the kitchen and taking cool evening walks by the beach, which was just around the corner.

So, like most Singaporeans, I emptied my CPF account, signed up for a home loan and, three months later, became the proud owner of my very own bachelor pad.

Buying my first home was a relatively painless and seamless process at the time.

All I did was put my John Hancock down on some papers – actually legal documents which I did not even bother reading – and there I was: a 20-something, first-time homeowner with a $250,000 mortgage.

Everything was cool until I received a letter from my bank just a couple of weeks before my first instalment payment was due.

It was my first mail at my new address and naturally I was ecstatic about opening it, but my fervour died when I read its contents.

The letter said something to the effect that because of fluctuations in the interest rate environment, my monthly instalments would have to be increased. In other words, I needed to pay more each month to service my home loan.

I was shocked. I had not even started unpacking my cartons of belongings and here was the bank telling me my monthly instalments had been raised.

That, however, is the reality that many often face when taking a home loan with variable interest rates, as I would later learn.

Buying a home is arguably one of the biggest financial commitments people will have in their lifetime, and a home loan is the heaviest debt they will have to pay if they take up a mortgage.

It baffles me now that I had actually signed up for a quarter-of-a-million dollar loan without carefully considering the conditions that were tied to it.

As the saying goes, the devil is in the details, and my sin was complacency. But what was an even bigger surprise was that many first-time homeowners were just like me.

I polled my peers and found that most of them also could not recall details like what interest rates their loans were on, how much their monthly instalments were, or even when their loan tenures would end.

Maybe we were just so preoccupied with the excitement of getting that dream home that we ignored the due diligence that should have gone into our hunt for the loan.

For me, the sheer number of banks that offered home loans and the various options available certainly added to the confusion. But I recently found out – when I was buying my second home – that a little research can go a long way in avoiding nasty surprises.

So if interest rates are what really matters to homeowners, then it will probably be a relief for you to know that there are really only two main types of home loan in the market: loans with fixed interest rates, and loans with variable or floating interest rates.

With a fixed rate loan, you are somewhat protected from the fluctuations of interest rates, and typically you can expect to pay the same monthly instalment for at least the first few years of the loan tenure.

So if you want some sense of certainty that your monthly payments will always remain the same, go for a loan with fixed rates. But it is only really any good if you sign up for the loan when interest rates are low.

However, if you do sign up for a fixed rate loan, bear in mind that the annual fixed rate – which these days could go as low as 1.5per cent per year – usually ends after the initial one to three years, depending on your bank. After that, you will be charged the bank’s prevailing variable or floating rate, which for many is where the confusion and worries start.

Loans with variable or floating rates are of course the other alternative you could choose right from the start.

The interest rates of these loans are benchmarked against references like the Singapore Interbank Offered Rate or Sibor.

Sibor is the average interest rate at which banks borrow from one another. The key determinant of this is the United States Federal Reserve rate and overall liquidity, or availability of funds, in the banking sector.

Since the economic crisis broke, the Fed has so far managed to keep interest rates at 0.25per cent, a historical low. At the same time, Sibor has hovered at just around 0.7per cent in the last half year.

Industry observers say that because banks here are highly capitalised – meaning they have ample supplies of cold-hard cash – Sibor will likely remain low for now, unless the Fed rate suddenly spikes.

There is also another type of variable loan, one where interest rates are pegged to the Swap Offer Rate or SOR.

SOR essentially comprises Sibor plus the lending costs incurred by the banks, and is calculated over a period of time: usually three or six months.

For example, if your loan is based on a three-month SOR, your interest rate will be the three-month SOR plus a small margin for the bank, and that rate will be revised every three months.

Like Sibor, SOR is available to the public in newspapers and on the Internet. But SOR is also affected by the exchange rates of the US dollar versus the Singapore dollar, so it tends to be a little more volatile than Sibor.

Of course there are other factors to consider when signing up for a home loan. They include making sure you have the capacity to service the monthly payments, and are comfortable with the interest rates and lock-in period that come with the loan package.

Lock-in periods determine how long you are tied to the bank and allow it to penalise you if you decide to redeem your loan early.

So do not just get excited over what are now staple freebies such as legal fee subsidies, property insurance or even the free shopping vouchers that come with some home loan packages.

Getting the right home loan can mean more peace of mind and maybe even some savings in the long term.

Shop around for a loan that fits your needs instead and keep an eye on the details that really matter when signing up for one – whether it is a fixed or floating rate loan.

You really do not want to match your dream home with a nightmare of a home loan.

This post is part of a series of posts that discuss about the buying term insurance and invest the rest in detail. To access the other posts in this series, click here.

How can one implement a buy term and invest the rest plan or a BTITR plan practically ? One method will be to devise a plan that will take out part of the discipline that will be required for a BTITR plan. A Regular Savings Plan or RSP, in short, which are applicable to unit trusts would be appropriate. This involves the investment of a fixed amount of money into the unit trust periodically.

However, I would prefer to invest in an low-cost Exchange Traded Fund or ETFs in short such as the STI ETF or the DBS STI ETF 100 since their performance is likely to be superior to unit trusts. But these ETFs do not have the equivalent of a RSP thus one will need discipline to purchase these ETFs manually on SGX periodically.

One solution would be to participate in the Philips Share Builders Plan or PSBP in short. This is similar to a RSP except that you will be purchasing counters on the SGX instead. Furthermore, the minimum investment amount is only $100 monthly and this can be done through GIRO deductions. As such, this takes the hassle out of purchasing these ETFs manually and it will also help to maintain discipline in implementing such a plan since the PSBP simplifies the purchasing procedure.

Thus what one can do is to compute the amount of money for investing, which is the difference between the monthly premiums between the life insurance and a comparable term insurance. Once this is done, be ready to set aside this amount of money from your salary or any other sources of income every month. Next, you can apply for the PSBP to deduct this amount of money through GIRO for the purchase of the ETFs every month. After that, all you have to do is to continue this plan to continue to acquire more of the ETFs. Dividends that are being distributed from these ETFs should also be reinvested to acquire more of the ETFs too and this will help to compound your returns at a higher rate. Over time, the value of your investments should increase and provide coverage which can be more than the sum assured for a comparable life insurance policy once your term insurance coverage ceases.

HDB resale prices up 1.2%
By Jessica Cheam
(Taken from the Straits Times on 2nd July 2009)

PRICES of HDB flats have staged a surprising comeback, reversing a first-quarter dip of 0.8 per cent to rise 1.2 per cent in the second quarter and reach a historical high.

Flash estimates from the Housing and Development Board (HDB) released yesterday show the resale price index rising to 140 – a record level not seen since the current index started in 1990.

It beats the previous record set in the fourth quarter of last year when it hit just over 139.

Market analysts said they were caught off-guard by the turnaround, as many had been predicting 2 to 10 per cent declines in HDB resale flat prices for this year after a descent began in the first quarter – the first one since 2006.

Yesterday’s numbers have changed expectations, with analysts reversing their forecasts for HDB flat prices to hold or increase by up to 5 per cent this year.

Industry observers attribute the latest surprise figures to three factors.

First, talk of an economic recovery has gathered momentum, backed by the recent stock market rally and brisk private property sales. This has slowed the slide in private property prices islandwide.

Flash figures capturing sales prices in the first 10 weeks of the quarter, released by the Urban Redevelopment Authority yesterday, show prices falling 5.9 per cent in the second quarter, compared to a 14.1 per cent decline in the previous quarter.

The marked slowdown in the price decline is in line with rising transaction prices evident since the strong rebound in home sales since February, said Colliers International’s director for research and advisory, Ms Tay Huey Ying.

More bullish sentiment, coupled with the strength in HDB resale prices, has supported the private market, say analysts.

High HDB valuations is another key factor. HDB upgraders – buyers with HDB addresses buying private property – have been able to sell their units at high valuations and for tidy profits to fund private property purchases.

Banking executive Vic Cheow, 28, is one such HDB upgrader who recently sold a four-room HDB flat to buy a three-bed condominium unit in Jurong.

Due to the high valuations, buyers do not need to dig deep for upfront cash – otherwise known as cash-over-valuation – to purchase resale flats.

‘We found selling at a profit easier as a result of this,’ said Mrs Cheow.

ERA Asia-Pacific associate director Eugene Lim reports that the agency, which accounts for more than 40 per cent of the HDB resale market, saw transaction volumes surge 52 per cent in the second quarter compared to the first.

‘The feeling in the second quarter is the recession hasn’t been as bad as it seems,’ said Mr Lim. Many sellers have become more willing to negotiate and are realistic, especially those selling larger flats, he added.

The third factor, flagged by Chesterton Suntec International head of research Colin Tan, is that demand far outstrips supply. HDB launched 7,793 new flats last year and will launch another 3,700 in the first nine months of this year.

‘HDB may have ramped up the supply of new flats recently, but it’s not enough and it takes too long,’ said Mr Tan. ‘There is still a lot of pent-up demand from a needs-based group of people. And they have no choice but to pay high prices because they cannot wait.’

A Credit Suisse report released recently notes that total public and private housing supply for 2008 to 2012 is 16,000 on average per year – 42 per cent lower than the 10-year historical average.

‘This does not look excessive versus the annual average 24,000 household formations or marriages,’ said the report.

But, added Mr Tan, it seems ‘unnatural for prices to rise against the fundamentals of the economy’, which is still in recession.

More detailed public and private housing data for the second quarter is set to be released at the end of this month.