The main stages and order of the provisioning process
long-term home mortgage and Payday loans
A long-term Payday loans is issued on terms of payment, maturity, and repayment, as well as with strict control over the use of credit funds. The main security for the repayment of loan funds is the pledge of the housing purchased at the expense of these funds.
In the loan agreement, the parties stipulate the following conditions: the amount of the loan provided; the term for which the loan is provided; the amount of interest paid by the borrower for using the loan; the order of repayment of the loan and interest on it; grounds for early termination of the agreement and collection of the loan and interest on it, and others.
The parties include the following conditions in the mortgage agreement: the subject of the mortgage; the price of the premises being transferred to the mortgage; the essence of the main obligation secured by the mortgage (provision of credit funds); the amount of the main obligation secured by the mortgage (the amount of the loan provided and the amount of interest for the use of funds);
the term for the fulfillment of the main obligation secured by the mortgage (the term for which the loan is provided); an indication that the property transferred to the mortgage is in use by the borrower (he is also the mortgagor under the mortgage agreement); insurance requirements for the property transferred to the mortgage; grounds for foreclosure on the subject of mortgage and others.
The rights and obligations of the parties under the loan agreement and the mortgage agreement must guarantee the lender and the borrower the protection of their interests and the ability to defend their rights.
If the borrower is unable to return the loan funds, the lender has the right to foreclose on the pledged property.
The standard procedure for obtaining a mortgage consists of the following main steps:
Payday loans
1) prequalification (approval) of the borrower. The borrower must receive all the necessary information about the lender, about the conditions for granting a loan, about his rights and obligations when concluding a loan transaction. The lender, in turn, assesses the potential borrower's ability to repay the loan;
2) the lender's assessment of the likelihood of repayment of the Payday loans and determination of the maximum possible amount of the Payday loans, taking into account the borrower's income, the availability of own funds for the initial payment, and the assessment of the mortgage subject.
This procedure is referred to as underwriting the borrower. The lender checks the information provided by the borrower, assesses his solvency, and makes a decision on granting a loan or gives a reasoned refusal. In case of a positive decision, the lender calculates the loan amount and formulates other important conditions for its issuance (term, interest rate, repayment procedure);
3) selection of an apartment that meets the financial capabilities of the borrower and the requirements of the lender. The borrower has the right to choose a home for himself both before contacting the lender and after. In the first case, the home seller and the potential borrower sign a preliminary contract for the purchase and sale of residential premises, which provides for the preemptive right to purchase this home by the potential borrower at the price agreed by the parties within the period stipulated by the parties.
In this case, the lender evaluates the housing from the point of view of ensuring the repayment of the loan, and also calculates the loan amount based on the borrower's income, the down payment made and the cost of housing. In the second case, a potential borrower, already knowing the amount of the loan calculated by the lender, can select housing that is suitable for the cost and conclude a purchase and sale transaction with its seller, provided that the lender agrees to consider the acquired housing as suitable security for the loan;
4) appraisal of housing - the subject of a mortgage to determine its market value. After the selection of an apartment for purchase on credit, the appraiser, whose services are paid by the borrower, carries out an independent assessment of the housing chosen by the borrower, and the lender correlates it with the size of the loan to be issued;
5) the conclusion of an agreement for the purchase and sale of an apartment between the borrower and the seller of housing and the conclusion of a loan agreement between the borrower and the lender, the purchase of housing by the borrower, and its transfer as a pledge to the lender under a mortgage agreement or under the law. In case of a positive decision, the lender enters into a loan agreement with the borrower, and the borrower deposits his own funds into his bank account, which he plans to use to pay the down payment.
Loan security can be arranged:
an agreement on the mortgage of the acquired residential premises with the appropriate notarization of the transaction, as well as state registration of the arising mortgage;
a tripartite (mixed) contract of sale and purchase and mortgage of residential premises, in which all three interested parties sequentially and almost simultaneously fix, notarize and register the transfer of ownership from the seller of the apartment to the buyer, as well as the mortgage of this apartment in favor of the lender;
the contract for the acquisition of residential premises at the expense of credit funds, when the mortgage of the acquired residential premises arises by force of law at the time of registration of the purchase and sale agreement;
6) settlements with the seller of the residential premises. The borrower pays the cost of the dwelling under the purchase and sale agreement using the amount of the down payment and the loan. It is advisable for the creditor to directly participate and fully control the settlement process under the purchase and sale agreement;
7) insurance of the subject of the mortgage, the life of the borrower, as well as, if possible, the owner's rights to the acquired dwelling.
Mortgage
In the future, the lender servicing the loan, that is, accepting payments from the borrower, keeping accounting records on the repayment of the principal debt and interest, and taking all the necessary steps to service the issued Payday loans.
If the obligations under the loan agreement are fulfilled, the loan is considered repaid, and the mortgage is terminated, about which a corresponding entry is made in the state register.
If the borrower and the pledgor fail to comply with the terms of the loan agreement or the mortgage agreement, the lender shall foreclose on the mortgaged housing in a judicial or extrajudicial procedure. The subject of the mortgage is sold, and the funds received are used to pay off the debt to the creditor (principal, interest, fines, penalties, etc.), the implementation of expenses for the procedure for foreclosure and sale of the subject of the mortgage. The borrower receives the remaining funds.
To reduce the credit risk (the risk of loan defaults) it is necessary:
to provide the creditor with a real possibility of foreclosure and sale of the pledged property, to create conditions for quick consideration in the courts of cases related to the foreclosure on the subject of the pledge;
provide a reliable system of registration of land, real estate, mortgages, and other rights to reduce the risk of the appearance of unforeseen rights for the lender;
to work out the mechanism for underwriting Payday loans, thereby increasing their validity;
develop reliable procedures for the provision and maintenance of Payday loans.
To reduce the risk of the interest rate (the risk of excess of the cost of credit resources attracted by the lender over the interest rate on already issued Payday loans), lenders can use various methods of indexing them in calculating loan payments, taking into account inflation and the borrower's income.
To solve the problem of reducing this type of risk, the key issue is to develop a system of reliable indicators reflecting changes in the market interest rate.
Reducing liquidity risk is directly related to the development of the secondary market for Payday loans, the creation of conditions for attracting long-term resources in this area, and the provision of refinancing of Payday loans issued by lenders.