27 Jul 2009
Media Statement - 27 July 2009
To Zaobao from Jeffrey Lee, Chief Financial Officer, NTUC Income
We empathise with the predicament of Mr Derek Chua and Madam Ng. We believe we have done more than what is reasonable to assist them.
Prior to signing the reverse mortgage documents in 1997, the couple was advised by lawyers on all the terms and conditions of the reverse mortgage.
Under a reverse mortgage, the maximum amount of funds that NTUC Income would lend to a borrower is capped at 80% of the prevailing value of the property. Once a borrower has entered into a reverse mortgage with NTUC Income, we review the loan to valuation ratio (also referred to as debt to asset ratio) of the property twice a year. The loan to valuation ratio is calculated by dividing the total loan by the value of the property.
When the ratio reaches or exceeds 80%, it is a signal that the maximum loan limit has been reached and steps would have to be taken to recover the loan in accordance with the terms of the reverse mortgage.
In 2004, when we reviewed the loan to valuation ratio of the property belonging to Mr Derek Chua and Madam Ng (the borrowers), we found that the ratio had exceeded 80%. Our managers met with the borrowers to discuss their options, which included transferring the loan to another family member and renting out rooms so as to obtain rental income. As the borrowers had indicated to us from as early as 2003 that they were contemplating a sale of their property in the open market, we also explored this option. The borrowers considered all the options and elected to sell their property.
Leasehold property will depreciate in value when the remaining lease gets shorter over time. A freehold property on the other hand will not depreciate in value because its tenure is indefinite. That being the case, selling a freehold property is a much more viable option than selling a leasehold property.
Further, the couple requested for their monthly payments from NTUC Income to continue pending their sale of the property and despite knowing that their loan to valuation ratio had exceeded 80%. We acceded to their request on compassionate grounds.
Even though the couple had assured us around May 2004 that they wished to sell the property, we did not insist that it be sold immediately, and it in fact remained unsold for a period of two years from May 2004 to June 2006. By this time, the loan to valuation ratio had exceeded 90%, and we had no choice but to take steps to recover the loan.
In about ten correspondences with the borrowers, we continued to give them the option of selling the property on their own and asked them to update us accordingly. However, the couple informed us that they had been unable to sell the property on their own and eventually in 2006, allowed NTUC Income to handle the sale on their behalf.
NTUC Income was able to sell the property through an auction at the end of 2006. The sale price was higher than the valuation of the property and also higher than an offer received at an earlier auction.
In spite of the property being sold at the best possible price, the proceeds were insufficient to fully repay the outstanding loan which had grown because of the borrowers’ continued receipt of the monthly payments over the two year period between 2004 and 2006.
On the shortfall, we did not proceed with our legal rights to enforce payment but extended an installment payment scheme by way of a “Relief Loan” at the borrowers’ request. This loan was repayable over a period of 10 years, starting from July 2007.
The borrowers made regular monthly repayments until December 2008, when they suddenly stopped making the repayments and disputed NTUC Income’s right to sell the property. They further asserted that they did not comprehend the reverse mortgage scheme. The borrowers raised these assertions for the first time in 2008, which took us completely by surprise.
We corresponded with the borrowers and also met with them to address their concerns and explain our position. As the borrowers refused to accept our position, we suggested that they may wish to refer the matter to the Financial Industry Disputes Resolution Centre Ltd (FIDReC), an independent institution set up to resolve any issues between financial institutions and their customers. The borrowers referred the matter to FIDRec sometime in March 2009.
While the matter was still before FIDReC, the borrowers commenced legal proceedings by issuing a Writ of Summons in the High Court. In accordance with the directions of the Court, we will be filing a Defence.
As can be seen from the narration of events above, NTUC Income has been more than reasonable in trying to assist the borrowers throughout the years.