Loans

KARACHI: The State Bank has launched Rs10 billion concessional financing scheme through banks to improve access to financing in flood- affected areas.

The State Bank on Tuesday issued detail circulars for banks and development financial institutions (DFIs) asking them to participate in the scheme for agriculture production, working capital finance to farmers and Small and Medium Enterprises (SMEs) in districts affected by recent flood.

“Under the scheme financing will be provided at affordable/concessional mark-up rates through banks and DFIs for which Rs10 billion has been allocated,” said the State Bank.

Refinance under the Scheme will be provided to the banks at the rate of 5 per cent per annum. The banks will be permitted to charge a maximum spread of 3 per cent from the borrowers, therefore credit to SMEs and farmers will be available at 8 per cent.Mark-up will be paid on quarterly basis in case of financing to SMEs. However, mark-up on agriculture loans will be paid on half yearly basis.

The State Bank said the agricultural credit will mean only farm credit for meeting the production or working capital requirements.

All categories of farmers (owners, owner-cum-tenants and tenants) of the specified areas will be eligible for agricultural loans under the Scheme.

The State Bank encourages banks to arrange for insurance of the loans provided under the scheme and Mandatory Crop Loan Insurance for five major crops viz. wheat, rice, cotton, sugarcane and maize to avoid risk of losses due to natural calamities.

According to the circular, tenor of the crop production loans and repayment of the principal amount will be based on the cropping cycle up-to a maximum period of one year.

The circular said the banks may provide Short-Term Loans to SME borrowers. However, banks will provide short term loans for working capital requirements of SMEs for a maximum period of one year.

Principal amount of loans under the scheme will have to be repaid on agreed date between bank and the borrower within a maximum period of one year.

Banks will not take more than 5 working days in evaluating an application for credit under the Scheme from the date of receipt of complete information from the borrower. Where the request is declined, the bank will explicitly apprise the applicant reasons for rejecting the application.

Refinance will be provided on the basis of certification and confirmation by the Internal Audit, SME or Agri Head or Business Chief of the financing bank that the loan is within the terms and conditions laid down in the Scheme.

Limits will be allocated to individual banks under this Scheme having branches involved in SME or agriculture lending in eligible areas. Interested banks may send their request for sanctioning of limit for current financial year to Director, SME Finance Department, within 7 days of issuance of circular separately for SMEs and agriculture finance.

The scheme included affected 17 districts of Sindh, 18 of Khyber Pakhtunkhwa, 11 districts of Punjab, 12 of Balochistan, 7 of Azad Jammu and Kashmir and 1 of Gilgit Baltistan.

The scheme will be effective from the date of issuance of this Circular and will remain valid only up-to October 31, 2011. However, outstanding refinance will be recovered on the maturity of respective loans.

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A few notes of importance:

• This only applies to a homestead property, that is the customers primary residence
• LTV refers to Loan to Value, meaning the loan amount as compared to the value of the home. As an example, a loan of $75,000 on a home valued at $100,000 would be a loan at 75% LTV.
• These specifics only apply to Texas cash out loans in the State of Texas – obvious, but I had to put it in here.
• Although the actual Texas Cash Out Laws in Texas have not had any “major” modifications in the last few years, there have been minor adjustments made, that does not mean that future changes will not occur.

Essential Information

First, and foremost, I will highlight some of the most important points of Texas Cash Out loans:

• A person can only have one homestead propety
• Any Texas Cash Out loan is limited to a maximum of 80% LTV
• Only one Texas Cash Out Loan may be given in any 12 month period
• A 12 day “cooling off period” , known as the 12 day letter, is required on every transaction
• A maximum of 3% of the loan amount can be charged to the customer which includes all closing costs
• Once a Home Equity loan is taken on a persons homestead, all transactions following from that point on (with the exception of the sale of the property) are considered Texas Cash Out loans.
• In regards to the last point, just to further clarify, even if you are refinancing the balance of a current Cash Out loan and not getting any new cash out, it is still considered a Texas Cash Out loan. The rule is quite simple, once a cash out, always a cash out loan.
• Every owner of the property must given the HUD-1 settlement statement for review at least 24 hours prior to closing your loan

The Process

The process of obtaining a Texas Cash Out loan is really only slightly different than a home equity loan or refinance loan in any other state. Yes, the documentation and requirements are different, but the process itself is very similiar.

Before applying to obtain a cash out loan in Texas, you have to realize that you are limited, by State Law, to a maximum of 80% LTV for the new loan. So, if your house is worth (appraised value) of $200,000, then the maximum loan you can get, including any/all closing costs involved is $160,000. So, if you currently owe more than $160k on your current mortgage on the house, you wiil not be able to obtain a home equity loan in Texas. I only say this to save you some time and effort if it is your desire to get cash out or obtain a debt consolidation loan on your homestead property. You can also use this figure to estimate as to how much cash will be available to you from your new loan as a maximum amount.

You can also expect that your options will be more limited than if you were looking to simply do a rate/term refinance (refinance the balance of an existing loan) or purchase a home. Your options are more limited because not all lenders will do Texas Cash Out loans. The reasons are a combination of them not willing to adjust to the more stringent documentation requirements of the Texas Home Equity loan, some are simply because they believe the documentation and legal restrictions are simply too much of an additional burden on them to offer these types of loans. Understand that while the process itself is not that different from the consumer stand point, from a lenders stand point the differences are more unique and do require the lenders to essentially have a seperate set of documents and, most likely, additional staffing just to manage and keep up with any/all changes to Texas Law regarding these loans.

The application process will be essentially the same as any other mortgage loan. You contact your mortgage broker or one or more mortgage lenders, give them your information and you are on your way. Once your applciation and credit have been evaluated, you will, as in any other mortgage transaction, receive a Good Faith Estimate and Truth in Lending within 3 days of you giving your information on an application. This can be used to compare your offers and to help you make an educated decision as to which lender/broker to go with. Once you have made the decision as to which company you will use, you will then be sent a disclosure package which will contain initial RESPA disclosures, other state required forms, lender required forms, and a list of items that you will need to provide along with these documents in order to get your loan completed. I have another section for disclosures (posting to be completed shortly), so I won’t go into the specific disclosures other than the ones that apply strictly to Texas Cash Out loans.

You can expect your loan to take longer than a standard mortgage loan. The reason is that Texas Law requires a 12 day cooling off period, so, your transaction cannot take place for at least 12 days after you sign that document which essentially states your rights as a consumer. In most cases, the delay may only be a couple of days as during that time period the normal other items can be taken care of simultaneously, ie., the appraisal, preliminary title report, and the gathering of the required documents from you, the consumer. I am simply saying that if you are anticipating your loan to done inside of two weeks, then you know now, that it is simply not possible.

Once your documents are in the hands of the company you chose, and the appraisal and title work are done, then the loan is underwritten and final approval is given as in any other mortgage transaction. At this time, there may be some outstanding conditions, or other documentation that may be required to be provided due to individual circumstances and/or is something was simply left out or missing from your file. Once those documents are provided, and your loan is cleared of all pending conditions or documentation, then the closing time/date is set and your documents are sent to the title company which prepares the documents for closing.

One item of note here, Texas Cash Out loans are required to be closed at a title company location, they cannot be closed in the customer’s home as some mortgage transactions are. This is strictly forbidden by Texas Home Equity Lending Laws, so don’t expect anyone to come to your home out of convience for you to close your loan, it just won’t happen in Texas.

Additionally, once your closing is set, it is a requirement that each owner of the property be given the HUD-1 settlement statement at least 24 hours prior to closing the loan. If any changes are made to the settlement statement before closing, then another 24 hours must be allowed before closing the loan, again, this is not optional. The reality is, in my opinion, this is actually a very good thing and one of the better laws that Texas has pertaining to home equity lending.

The fact that the consumer gets to see the actual HUD-1 settlement statement a day before the loan closing gives them the opportunity to ask questions and to make certain that everything is correct OR as stated on their initial Good Faith Estimate. This means that there can be no surprises at the closing table. If it were up to me, all consumers would get the HUD-1 one day prior to closing, that way all questions can be eliminated and it would make the closing go that much smoother as you would already be aware of exactly what the settlement statement has on it before you get to the closing table – that is for another discussion.

After you sign the documents there is a 3 day right of recission, as on all mortgage refinance transactions on owner occupied homes. This means, quite simply that once you sign, you are given copies of all documents and given 3 business days (Saturdays count) to review all documents and make your final decision as to whether or not you want the loan. Keep in mind that the decision is YES, unless you decide to say no. So, if you sign documents on Monday, you are given until midnight of Thursday to cancel the transaction, you loan funds on Friday. Friday is too late to cancel. So, if you are going to cancel, make cetain that you notify the title company as soon as possible but you only have until Thursday to do it.

Once your loan funds and you are given your proceeds (cash or payoff sent off), then you are done. Keep in mind that you cannot complete another Texas Cash Out loan for 12 months (1 year) to the day of your loan funding, without exception. You can’t even sign the initial disclosures on a new loan until after that 1 year is up. The reason I mention this is so that you realize that you only get one shot a year to do a loan like this, make sure you get what you need the first time because it will be a long time before you can do it again.

Any questions pertaining to this information can be emailed to me or you may simply comment on this post and I will respond back to you.

My next article will be about the what is required for a mortgage loan.

Author: David Demko
Article Source: EzineArticles.com
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