Letters From Our World-Class Government

Two posts ago, I featured a letter in the TODAY newspaper. The writer, Ee Teck Siew, suggested that when a customer seeks a housing loan, some kind of risk profiling should be done to help the customer determine whether he is able to afford this long-term obligation.

You may or may not agree with this suggestion, but Teck Siew certainly did express his idea clearly enough. His last sentence sums it up: "It is high time a more rigorous regulatory regime, one with a focus on educating consumers, be added to help Singaporeans in their financial decisions."

The Ministry of National Development has now replied. Rather predictably, its response was mostly irrelevant and rather inane:

Monday • December 22, 2008
Letter from Lim Yuin Chien
Deputy Director (Corporate Communications),
Ministry of National Development

In “Risk profiling for homebuyers?”(Dec 17), Mr Ee Teck Siew suggested that the Government and industry associations consider implementing a “fact finding process” to ensure that potential home buyers buy properties they can afford, based on their abilities to service mortgage loans.

Most homebuyers would need to obtain a bank loan upfront. The homebuyers would therefore be subject to credit screening by the banks, which will ensure that the home-buyers can afford the properties they intend to buy. In the credit checks, the banks would typically take into consideration the homebuyer’s income, age and other debt commitments.

Housing and Development Board (HDB) flat buyers taking HDB concessionary loans are required to obtain a HDB Loan Eligibility (HLE) letter before committing to the flat purchase. The HLE letter similarly takes into account the flat buyers’ age, income and other financial commitments to calculate the maximum loan quantum and the expected monthly installments to ensure that the flat buyer is not financially overstretched.

We thank Mr Ee for his feedback.

As I had already explained in my earlier post, it is quite true that the bank will definitely check its customer's credit, before granting him a housing loan. However, as I had also already explained, the bank performs these credit checks for its own benefit, not for the benefit of the customer. Furthermore the bank has no duty to advise the client.

Now if you were going to take a 30-year mortgage to buy a new home, here are some of the issues that you would want to think about first. How many children do you have, or plan to have? Do you expect them to go for higher education, and if so, how much do you plan to save for that? How much are you saving for your own retirement? If you were to become unemployed for six months, would you still be able to meet your mortgage payments?

Do you have aged parents to support? How much money might you need to do that? What are your own career prospects, at least for the foreseeable future? Will you be needing extra capital, to run your own business? How much does your current lifestyle cost to maintain? Does your spouse work, or is yours a single-income family? If the latter is the case, what's the game plan if that sole breadwinner were to lose his job, become ill or die?

You have to think about these kinds of questions, before you decide how much you can afford to borrow. The future can't be predicted with 100% certainty, but that's precisely why you need to do your planning.

These are also the kinds of questions which neither the banks nor the HDB will help you with. Therefore Teck Siew's suggestion was that perhaps some kind of regulatory process could be put in place to help Singaporeans work through such questions.

In its reply, the Ministry failed to address any of the above. It was really a nothing sort of reply. Almost completely meaningless.