Recovery of Mortgage Loans

1. Recovery of Mortgage Loans SBP Training Program for FIs

2. Objectives: • To keep the bank’s Asset Alive, profit making and a going concern. • But, before launching any exercise, take into account local governing bodies and their obligatory instructions. These includes; • Prudential Regulations • Recovery Ordinance 2001 • Circulars especially BPRD Circular No. 13 of 2008

3. Pre-requisites • Close coordination among Operations (Ops), Sales and Collection & Recovery (C&R). • System to be in place: Ops to immediately email the information (MIS) on non payments to C&R. • Trained Staff: C&R, MIS & Telecaller/Phone Banking.

4. Resposibility • Ops: To provide reliable information (MIS) in time. • Sales: To help C&R recover non-paid installments. • C&R: To deliver a professional job throughout/even up to the inevitable Legal stage.

5. Strategy/Approach: Pro-actively, booking quality loans/borrowers only. As a safety measure, a ‘Code of Conduct’ (COC) on the lines of Annexure-CR1 to be approved & signed by the borrower, at the initiation of the HF borrowing relationship/signing CAD documents. This COC document briefly/step by step covers C&R regime to be followed by the bank in agreement with the borrower, if the installment repayments are delayed including recording of the critical conversations with the delinquent borrowers for record & self defense. Consultative/workable solution finding approach with mutual trust, confidence & consent of the borrower. Professional/to the point approach of not wasting any time i.e. moving to the next/even to the legal stage if the situation is reached/appears logical/possibility that this tactic may exert positive pressure on the delinquent borrower. C & R’s involvement from the very beginning/log-in stage i.e. to check & sign on the genuineness of the references (2) details given in the application form. C&R regime has to be different in HF than in AF & CC, because of the altogether different product features/business dynamics. HF, as against AF & CC is usually taken once or twice in life and therefore demands, by both the lending bank & the borrower, a detailed & careful scrutiny of the different possible future economic scenarios in the course of repayment of the facility, to avoid any untoward situation.

6. Action Plan: Pro Active Approach/Measures Consultative Approach/Measures Legal Stage Litigation Stage Auction/Recovery Approaching Central Bankers (SBP) for giving room/modifying the existing HF Policy parameters in line with the developed world.

7. 1. Pro-Active Approach: Following measures should be adopted, as a pro-active approach, to avoid professional lapses resulting in difficult delinquent situations. • Quality Loans/Borrower’s immaculate credit history & repayment capacity. • No overstretches; policy deviations; special considerations & border line cases. • Quality References (2) & Guarantors (EHF). • Stringent Credit Processing/Parameters to ensure quality approvals only.

8. 2.Consultative Approach: The bank should provide consultancy & solutions in the delinquent situations with complete trust of the delinquent borrowers on its side. • explain/remind the borrower, in a very polite manner, about the importance of regular installment payments

9. ‘X DPD’ Stage - (Telecaller + C&R Officer): • Casual Attitudes/Habitual: Constant follow-up & professional interaction is required to change their attitudes/habits. • Temporary Financial Constraints: These situations should be thoroughly probed & then advice/guidance sought from the seniors on providing a temporary relief to the genuine cases (Principal amount payment waivers, if possible/in Policy). • Serious Financial Difficulties/Constraints: This category has the strong probability to move to the ‘Default Stage’; therefore demands full attention.

10. Cases with serious & genuine financial constraints • Reprofiling/Extending the tenure to the maximum allowed period in BAL’s HF Policy (Presently 20 years) if there is a room for that. • Give temporary moratorium relief on Principal amount repayments if that makes a difference. • Ask the borrower to swap his present property with the one of lesser value to take the advantage of a reduced debt burden.

11. ‘30 DPD’ Stage – (Telecaller + C&R Officer + Team Leader) Almost the same exercise as in above (XDPD), except that to be more firm at this stage as well as remind the delinquent borrower of the consequences, if the situation is not immediately rectified. Take support of the ‘Annexure CR-1’ document already signed by the borrower on initiation of the borrowing relationship To put Additional Pressure by sending Annexure CR-2

12. Basic ‘Code of Conduct’ (Annexure CR-1 • ) (To be signed by the bank & HF Borrower, at the initiation of the borrowing relationship) This document is signed between me _______________________________ (Bank’s Home Finance Facility Borrower) & Bank ( the HF Facility Provider) as a free & fair acknowledgement by me on the measures & steps the latter is authorized to take/adopt for recovery of overdue monthly installments from me. Bank is authorized to call/SMS at my following cell, office & residence telephone #s as mentioned by me also in my original HF Application Form, during the times mentioned/specified there against. Cell # _____________ 10.00 am to 10.00 pm (Max. 2 calls/day) Office #_____________ 10.00 am to 06.00 pm (Max. 2 calls/day) Res. # _____________ 10.00 am to 10.00 pm (Max. 2 calls/day) Bank is also authorized to record the conversation & correspond with me by SMS/Letters/Legal Notice as & when required and deemed appropriate. I undertake to be personally available for meetings/discussions, whenever required by Bank to resolve the delinquent situations created by me, for whatever reasons. If need be, Bank has the right to approach to my employers/bankers/foreign embassies, two (2) references provided by me in HF Application Form & the Guarantors, if any, in the course of/efforts to get my loan account regularized. I also undertake to convey my acceptance in time & writing on the new mark-up rate options offered to me by Bank on each year of completion of the mark-up rate term. If I fail to do so in time specified, Bank has the right as well as my permission to apply the new mark-up rate on each renewal as per similar option availed by me in the previous term. I also hereby commit to keep Bank updated, in writing, whenever there is a change in my employment/business &/or contact details.

13. Annexure CR-2 September 15, 2011 Mr/Ms/Messors ……………………………………. ……………………………………. ……………………………………. Dear Sir/Madam Subject: Bank Home Loan Facility for Rs ………… (Outstanding as on …………...) We regret to inform you that in spite of our all efforts as we had agreed, documented & signed together (Collection & Recovery Document CR-1); you are not forthcoming in making regular repayments of your monthly installments and as a result an amount of Rs …………. pertaining to your …………… installment is now overdue by ………… days, as on date. You are requested to please honor your commitment by making an immediate payment of the overdue amount to your loan account # ……………………… at ………………….. & take all possible measures, in your interest, to not to repeat this incident again in future. Yours truly,

14. ‘60 DPD’ Stage – (Team Leader + Manager): • Same exercise/efforts as above (30 DPD) including letters/documentation & as mentioned in the C&R Document (Annexure-CR1) signed by the borrower at the initiation. Letter as per text provided (Annexure-CR3) to be released at this stage by courier.

15. Annexure-CR-3 September 15, 2009 Mr/Ms/Messors ……………………………………. ……………………………………. ……………………………………. Dear Sir/Madam Subject: BAL Home Loan Facility for Rs ………… (Outstanding as on …………...) This is to inform you that, unfortunately we have reached to a stage, where despite our best efforts in the light of our Collection & Recovery Document CR-1 & CR-2, you are not complying to your commitments, with the result that as on date, ………installment/s amounting to Rs …………. & Rs ……………. for the month/s ………….. & ……………. respectively are now long overdue for payment. May we bring into your kind notice at this stage that if you do not quickly address yours this overdue situation before it is 90 days past; you will be next classified as a defaulter in the record of SBP with very adverse consequences. Therefore, we request you to please honor your commitment by making an immediate payment of the above overdue amounts to your loan account # ……………………… at ………………….. & make an arrangement, purely in your own interest, to not to repeat this unfortunate situation ever again in future. Yours truly,

16. ‘Legal Notice / 90 DPD’ Stage – (Manager + Product Head) • Same as above + release Annexure-CR4 + Legal Notice.

17. Annexure CR-4 February 9, 2009 Mr/Ms/Messors ……………………………………. ……………………………………. ……………………………………. Dear Sir/Madam Subject: BAL Home Loan Facility for Rs ………… (Outstanding as on …………...) By not paying your regular monthly installments & with some of them now even entering in to 90 days past over due category; your loan account, as per our central regulators, State Bank of Pakistan, has now been classified as ‘Defaulter’ with adverse repercussions for any future consumer finance possibility for you in Pakistan. We request you to please make an immediate payment of the overdue amounts and come out of this unpleasant situation as quickly as possible. Otherwise, very soon next you will receive a legal notice from our lawyers forewarning you start of a legal process from our side against you for recovery of our outstanding loan amount & a possible foreclosure of the facility & repossession/auction of the Bank Alfalah financed property as a result. Yours truly,

18. Legal/Recovery Stage • The borrower under default should be closely followed up at the Branch level. • Appropriate steps should be considered, as mentioned below, with the assistance of lawyers • and approval of Executive Committee to safe guard the interest of the Bank. • To recall the outstanding Home Finance • Foreclosure of mortgage • Sale of mortgaged property

19. Recovery: • “Fair Debt Collection” Circular • 14 days notice before paying visit • Show Identity card and use acceptable business language • Collection calls should be on recorded lines • Borrower may be contacted on alternative number only if there are not contacted at given address or phone numbers • Visit reports shall be kept in record for at least 6 months

20. Recovery: • Collection staff shall not harass borrowers’ family • However, information may be obtained from friends/family/third party if he/she is not in contact for 30 days after the first missed payment • To ensure that collection staff do not transfer or misuse any personal data. • Outsource recovery agencies if any, should properly be on PBA panel.

21. Recovery: • Frame code of lawful conduct for recovery staff • Introduce a well defined mechanism for addressing complaints • Undertake periodic review of policies • Engage suitably qualified staff and provide them necessary training • Regularly monitor the activities of collection/recovery staff

22. Conclusion/Delinquency Reasons: Generally/usually there are two (2) reasons in case of a genuine (not casual/habitual) delinquency. One, that the mark-up rates/repayments have become out of reach/pocket of the borrower; two, that there was a professional lapse in assessing the credit eligibility of the borrower. Mark-up rates, on all of the consumer finance are exorbitantly high in Pakistan as compared to the outside world, in spite of the low propensity to afford (income) of its consumers.