STANDARDISING and simplifying housing loan documents is a step
forward. Kudos to Pemudah (Special Taskforce to facilitate business),
Bank Negara
and the Association of Banks in Malaysia (ABM). It will be an excellent
move to reign in the rogue banks, financial institutions (FIs) and
development financial institutions (DFIs).
The National House
Buyers Association (HBA) views the recent standardisation of loan
agreements for housing loans below RM500,000 positively. For many years,
HBA has been calling for greater protection for house buyers when they
buy from developers and for borrowers when taking a housing loan.
As
a typical housing loan ranges between 20 and 30 years, borrowers are
stuck with the terms and conditions (T&Cs) of the housing loan for a
long time. Unfortunately, most borrowers do not really understand the
T&Cs of housing loan, as:
(i) The loan agreements are lengthy, running between 20 and 30 pages;
(ii)
They are filled with legal terms and jargon that even borrowers with a
law degree will still need their legal dictionary for reference.
Even
for borrowers who are law-savvy, the loan agreement is a one-way
traffic; the borrower must accept all the T&Cs or find another bank,
as the banks will not vary any T&Cs. However, the scenario is the
same for all banks and borrowers are at their mercy. (banks in this
context includeFIs and DFIs).
Another grave injustice is that the
cost of legal fees for the said housing loan is borne by the borrower
although the lawyer is in fact, representing the banks and on its panel,
and is in no position to advise the borrower. The borrower will be
required to appoint his own lawyer should he require any legal advice.
But this will be futile as banks will not agree to vary any T&Cs of
the loan agreements.
Standardised Loan Agreement
HBA
has been urging banks in Malaysia to be fair and transparent in their
dealing with borrowers. Hence, credit must be given to “participating
banks” for finally agreeing to adopt a standardised template for housing
loans with simplified language which is easy for the layman to
understand.
Based on our quick analysis of the Standardised Loan
Agreement which can be downloaded from the website of the Association of
Banks in Malaysia (
www.abm.org.my),
the agreement does appear to contain less legal jargon and is written
in a manner which is easier for the borrower to understand.
The
agreement also does away with unnecessary and ridiculous restrictions
that certain bank previously impose on borrowers taking housing loans,
such as:
● Borrowers cannot rent out the property without the consent of the banks;
● Borrowers cannot undertake any renovations without the consent of the banks; and
● Hidden clauses which impose various hidden charges and penalties such as late payment charges on borrowers
Based
on our preliminary assessment, HBA views the agreement positively and
we urge the banks and Bank Negara to further improve on the following
areas:
Remove the RM500,000 cap
HBA calls for the
RM500,000 limit for the Standardised Loan Agreement to be removed. This
agreement should be applicable for all housing loans regardless of the
amount, as the nature of the housing loan is the same. Already, most
landed properties in areas such as Puchong and Kota Damansara are in
excess of RM500,000. Even strata-properties in locations such as Bandar
Utama, Ara Damansara are already in excess of RM500,000. Why not extend
the coverage to all housing loans per se?
All industry players must adopt the standardised loan agreement
It
would appear that the standardised loan agreement is being used by
certain participating banks on a voluntarily basis and not all
commercial banks which give out housing loans are adopting this
agreement. Why is this the case? Bank Negara should compel all
commercial banks to adopt this standardised agreement. In addition,
non-banking Institutions that give out housing loans, such as DFIs,
insurance companies must also be compelled to adopt the agreement. Why
shouldn't the house buyers offered similar protection here?
Non-members of ABM such as DFIs include Bank Islam, Bank Muamalat, Bank Rakyat,
Agro Bank, Bank Industri, Bank Simpanan Nasional and
EXIM Bank which are formulated under their respective legislations.
Remove unnecessary fees and charges imposed on borrowers
Certain
banks currently impose unnecessary fees and charges on borrowers when
they request for bank statements which are needed when sthey want to
settle/refinance their housing loans, or when making EPF withdrawals to
reduce their housing loans. While the fees of up to RM50 may not seem
much to some people, it still is an exorbitant amount as it cost banks
next to nothing to produce such statements. Moreover, it is the
borrowers' right to settle/refinance the loan and/or to make EPF
withdrawals to reduce their loans. A bank statement showing the
principal sum outstanding is required to facilitate such transactions.
By
imposing fees of up to RM50 to prepare such simple statements, banks
are blatantly taking advantage of their customers as they have no choice
but to pay the charges just to ensure that the transaction goes
through.
HBA is calling for banks to be prohibited from charging
fees for these statement to facilitate repayment, refinancing or to make
EPF withdrawals to reduce their loans. Some Banks are already charging
RM10 for “reprint” of a bank statement on current accounts. Can you
imagine a situation where the customer has not received his monthly bank
statement for whatever reason and has to pay RM10 for a “reprint” of
his own bank statement?
Banks can unilaterally vary theinterest rate
However,
upon closer inspection of the standardised template, HBA noticed that a
clause currently found in most housing loans has been carried forward. .
Even
if the borrower had faithfully paid all his dues and installments' on
time, the bank is entitled to vary the interest rate unilaterally at any
time during the loan tenure. There is no such thing as sanctity of a
binding contract between the borrower and the banks.
As we know,
the current interest rates for housing loans are competitive, with some
banks willing to go as low as BLR less 2.50%. So, what this can mean is
that a few years down the road, when the banks realise that such low
interest rates are no longer feasible, they can vary the interest rate
from say BLR less 2.50% to BLR PLUS 2.50% and the borrower is obliged to
pay the new interest rate. Furthermore, if the previous installment was
only RM1,500 a month and the new installment due to the revised
interest rate is RM2,500, the borrower must pay the new rate or risk the
bank repossessing his house.
HBA urgently calls for Bank Negara
to repeal this clause to prevent banks from having the upper hand to
victimise unsuspecting borrowers. Banks must not be able to unilaterally
vary the interest rate if the borrower had not defaulted on his
obligations' under the loan agreement. Banks may say that they will not
normally invoke/exercise the said clause. But, covenanted terms and
conditions are binding upon both parties.
Lawyers have to purchase standard forms from banks
Nowadays,
law firms undertaking banks' work have to purchase standardised
pre-printed forms from banks. The price ranges from RM150-RM350. Would
printing cost be so expensive or are banks making a profit or “mark-up”
from such sales to law firms?
Such “expenses” are nevertheless
passed down to customers/ borrowers as disbursements. Couldn't a “soft
copy” be made available to law firms to adopt and print at their own
cost and expense? Printing charges are only limited to RM50 as approved
by the Bar Council.
Apportionment of payment to interest and principal shrouded in secrecy
Another
grave injustice to borrowers is the allocation of monthly installments
towards the settlement of principal and interest as this is not
disclosed anywhere in the Loan Agreements' or even in the Standardised
Template.
To illustrate a real life example, we had a complainant
who took a 20-year housing loan about six years ago. After diligently
paying his loan for five years, the complainant assumed that the
principal amount outstanding should only be about 75% of the original
amount. Unfortunately, the complainant had personally experienced, the
amount was closer to 83%.
There need to be greater transparency
on how the allocation of monthly repayments for interest and principal
is done and this must be disclosed in the loan agreement. Moreover, the
allocation must be done on a “straight line basis” so, after paying five
out of a 20-year housing loan, the principal outstanding must be 75% of
the original amount.
Conclusion
HBA calls for
banks to continue to take cognisant of their borrowers' hardship and
protect the interest of their borrowers instead of just focusing on
profitability. Without the borrowers and customers, banks will not have
any profits to show.
HBA also calls on Bank Negara to continue
the close monitoring of banks to ensure that they do not take advantage
of borrowers. The battle of borrowers against banks is akin to David vs
Goliath. Timely intervention from Bank Negara is needed to balance the
scale of power.
BUYERS BEWARE
By CHANG KIM LOONG
Chang Kim Loong is the honorary
secretary-general of the National House Buyers Association, a
non-profit, non-governmental organisation purely manned by volunteers.
You can log in to www.hba.org.my
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