Home loan default: tips to avoid pain

The home loan financier and the customer have a symbiotic relationship. In the socio-economic backdrop of Indian society, it needs no reiteration how significant is the decision to purchase a house. The lender’s role is pivotal as it provides the buyer with the necessary bandwidth to choose her or his dream property.

However, make no mistake, the customer is equally pivotal to the housing finance lender: after all the operational robustness of the housing finance company is directly proportional to a healthy EMI recovery module.

In most cases, the process concludes smoothly as customer dutifully pays EMIs each month. In some cases, however, EMI is not paid on the due date or not paid at all, leading to a payment default. Typically, EMI defaults are temporary in nature. Payment defaults can occur on account of several unavoidable circumstances such as loss of steady income or a sudden additional expenditure or prolonged sickness that lead to financial distress. In rare instances, default may also occur due to untimely death of an individual. 

Financial institutions diligently monitor all the portfolios for any unusual triggers. Once the default occurs, the monitoring team flags the account to collection department, depending on their policies, the banks either make a call immediately or wait till the next month.

While not much can be done in case of rare cases, the temporary default can be managed by taking the following immediate measures: 

 First of all, inform the home finance company about the default. Usually these are amicable in nature, therefore, reach out to them and discuss your problem. This will result in a solution that is acceptable to you as well as the financier.

 Do not avoid contact with lenders. Not taking or responding to calls from the company leads to a feeling of mistrust, making the payment default appear intentional.

 Remember you owe the lender. As a customer, it is your moral and legal obligation to repay the loan with interest on the agreed time. Avoiding contact with them will only worsen the situation and create unnecessary mistrust issues which can ultimately lead to initiation of legal action by home finance company.

 Financial institutions are experienced in dealing with such situations and will try their best to resolve problems faced by genuine customers. If you approach lenders and convince them about your genuine problem, companies will usually be flexible in restructuring the loan and help you in re-initiating EMI payments.

 In the event you are unable to repay due to a protracted problem and the housing finance company (HFC) cannot resolve the issue and contemplates/launches follow-up action, you need to be aware that as a customer, you have certain rights.
Your rights as a customer

vis-à-vis the collections process:

 Make sure the company explains the repayment process in detail i.e. the amount, tenure, periodicity of the repayment, nature of dues, total overdues etc. In case of a default, all HFCs follow a defined process starting with reminding the customer of the default by sending a notice or by making personal visits.

 You can be contacted ordinarily at a place of your choice and in the absence of the specified place; the HFC can contact you at your residence or place of work.
 You have the right to ask for the identity card of the individual or the authority letter for representing the company. 

 HFC’s representatives can contact you between 7 am and 7 pm, unless you specify otherwise. In addition, your request to avoid calls at a particular time or place has to be honoured as far as possible. This is valid only if the company has been able to reach you and you have updated your contact details with the home financier.

 Ensure documentation of details such as time of visit, details of conversation.
 Inappropriate occasions such as bereavement in the family or other unfortunate occasions should be avoided for making calls/visits to collect dues provided the company or the relationship manager representing the company is aware of the unfortunate incident.

 Finally, since it is an obligation to repay the loan in time, timely and effective communication with the housing finance company helps in resolving issues quickly and amicably.

At the same time, be absolutely clear in understanding your rights as a customer. Financial institutions understand the customer’s emergencies and will work with you as long as you are transparent and upfront with them and do not default intentionally.

(The writer is Chief Risk Officer at PNB Housing Finance)