2011 General Elections – Housing with 30 years Mortgage Loan

2011 General Elections – Housing with 30 years Mortgage Loan

It is evident that we were often discourage by making our decisions, making our own mistake and learn from it. The agency are too concerned that we are a young nation and needs to be micro managed in a way to earn accolades and show the world they are doing a good job taking care of our basic housing needs and milking our money monthly to fund their investments. (Agency problem which i will discuss later in further details)

Let me quote HDB “Providing Affordable, Quality Homes.”
A layman is conditioned to think it is normal to take a 30years loan for affordable housing.
In addition, it also highlight that the quality housing is an asset with appreciating value.
Installments are deducted from CPF so little or no cash needed for servicing the loan repayment for the next 30 years.

What it did not state are the assumptions:
1. You must stay healthy for the next 30 years
2. You must have regular stream of income for the next 30 years (Deduction to go through from CPF)
3. Once you defaulted on your repayment we will confiscate and auctioned off your property

30 years is a long time. Ben Bernanke do not know what will happen to the US economy after QE2 comes to an end in June 30. Fund managers are fighting for their very existence everyday, trying to please investors and not upsetting the regulatory.
My point is no one knows what will happen tomorrow, let alone 30years.
Our Agency here did a fantastic job of forecasting. It seems to know what will happen in this 30 years.

A housing loan to HDB is like selling a 30 yr fixed coupon bond to every house owner with monthly coupon payments. Their underwriting costs are those deeply discounted land procure and the undisclosed low construction cost incurred.

Where we received floating (our salary) and pay fixed (mortgage loan) that expose us to the very
dynamics of global economy. In hindset, Singapore has always bounced back from a slowdown strong and fast. In this scenario, we will all benefit with higher pay and with same fixed obligation. Both party are happy on this trade.

However, to be realistic, lets flip the coin around and look at the downside.
In a recession, jobs are lost and no more cpf. We have to pay outright cash. In this scenario, HDB gains and I do not have to go further explaining who is losing out here.
Once you stop repaying your mortgages, assumption 3 will be triggered.

In my opinion, HDB should always fulfill its civic duty of providing affordable homes and not make indecent profit which brings to my next point on Principal-Agent problem.
Principal-agent problem is define as a conflict of interest between management and stakeholders.
In this instance, the management is HDB, seeking to make extremely high level of profit. And the agent is us the existing, would be and yearn to be house owners.

There are one point i would like to highlight to the agency. Singaporeans are smarter than you think. Yes you may have the advantage of withholding these asymmetrical informations (land and construction costs). One day truth will be told and lights will be shed.
So what is next for this agency to lock in profits quicker? Packing 30yrs fixed bond mortgage loan into some kind of products attached a ratings and sell to the banks? Does it sounds like CMOs( Collateralized Mortgage Obligation) and MBS(Mortgaged Backed securities)? The very toxic assets that causes the financial meltdown in 2008?