Tuesday, February 7, 2012

The EPF DBKL Loan Scheme For Dummies

I find the discussion on the EFP DBKL Loan scheme amusing.

PR is going to town claiming that the scheme is AGAINST The EPF Act

PETALING JAYA: Using RM1.5 billion from the Employees Provident Fund (EPF) to finance the special housing scheme is going against the law, Petaling Jaya Utara MP, Tony Pua, said today. “Nowhere in the Employment Provident Fund Act 1991, does it say it can provide loans to individuals to acquire low-cost apartments using the property as a collateral” he said in a statement. “(Channelling RM1.5 billion to) the social housing loan scheme is in breach of the EPF Act, which regulates the fund in terms of permissible investment activities,” he added.

Najib has said the move to use EPF money to finance the housing scheme would not undermine the interest of EPF. Najib announced the initiative – People’s Housing Programme-National Economic Action Council and Kuala Lumpur City Hall (DBKL) public housing special scheme – last week. Pua said that clause 26 of the EPF Act allows EPF to lend money to federal and state governments and provide loans or subscribe bonds of registered corporate bodies. “It may provide loans to members of the fund for the purpose of purchasing or building a house,” he added here

I think Tony was referring to this news

The People's Housing Programme-National Economic Action Council and DBKL Public Housing special scheme, announced by Prime Minister Datuk Seri Najib Razak last Tuesday, is aimed at helping existing tenants to obtain funding to purchase the houses for sale. The scheme would commence this March and buyers are expected to sign the sale and purchase agreements in May. Raja Nong Chik said the houses would be mortgaged to EPF and DBKL had the power to foreclose on buyers who had installments in arrears of six months. "DBKL would then sell the properties to those on the waiting list, which now numbers 27,000 people." To ensure DBKL had sufficient funds to buy back the properties, EPF has placed a condition that it set up a Redemption Reserve Account with 20 per cent of profits allocated under the scheme. here
If the EPF is going to lend direct this is how the flow would look like

And he is correct to say the EPF cannot lend directly to the Borrowers who are NON Members

Today the Union Reps on the EPF Board came forward

KUALA LUMPUR, Feb 7 — The government did not consult the Employees Provident Fund’s (EPF) board of employee representatives when it decided to use RM1.5 billion from the EPF to give home loans to unqualified buyers, union officials have said. Former Sabah Commercial Employees Union (SCEU) general secretary Rebecca Chin, who sat on the EPF board from 2007 to January 31 this year, charged that she was not informed of the new loan scheme during any of the EPF board meetings.
“By convention, we should have been informed. I was a representative of SCEU until January 31, but I was not even aware of this. We were not aware of it until the announcement was made and we had to read it in the newspapers,” she told The Malaysian Insider. Asked whether it was unusual that she was not informed about the new scheme, Chin responded by saying “we know the government system, and how it works... I’ve yet to be briefed or notified about this.” Her remarks come after Federal Territories and Urban Well-being Minister Raja Datuk Raja Nong Chik Raja Zainal Abidin said last week the government had approached a few potential funders before announcing the project, and that it was the EPF’s management that “came forward” to offer to fund the home loan scheme. here
The announcement came out on the last day of her term (if the Bernama news report date is correct), so she may not have been informed. For all we know the EPF Board have not decided on the matter yet.

Too many unknowns at this stage

I personally feel that EPF should re-look at the scheme instead of "lending directly to the Borrowers"

Why do I say this

There is a condition in the EPF Act that allows for Loans to Companies and also a particular clause created to accommodate MBSB (26A)

Source here

It would be cumbersome for EPF to have to deal with all the borrowers anyway, the Credit Underwritting Process and Management over the life of the Credit Exposure (Collections, Default Management etc) should be done by DBKL (Syarikat Perumahan Wilayah Persekutuan), EPF should only be concerned at the Portfolio Level purely on a Quarterly or Semiannually Basis.

To do so the Minister needs to "approve" that SPWP is an "Approved Company" as per the EPF Act and waive some of the criteria set out in section 26A

EPF then lends to SPWP and SPWP relend the funds to the Borrowers.

That would be the right way to go.

To simplify things refer the chart below constructed from news sources (please click picture for better view, from Risk Management Perspective all boxes in Yellow are Quasy Government Risk, the funding scheme between EPF and FTF/SPWP may follow "with recourse" basis here)
 Technical Notes : here  and here

I have no further details cause the Minister actually planned to "explain to us" later

 He said a roadshow will be held in March to explain the new scheme in detail to stakeholders, and that the first phase of the scheme can begin by May. 

Well can we wait that long?

Or will the EPF Board come forward to explain the scheme?

We should find a way on how to do it instead of trying to shoot down a decent idea by spinning things out of proportion (sub prime or impact to national debt here)


EPF loan is to Govt, not house buyers By FLORENCE A. SAMY Approved loan of RM300mil to be strictly monitored KUALA LUMPUR: The Employees Provident Fund (EPF) has agreed to initially give a RM300mil loan to the Government and not directly to buyers for the low-cost public housing scheme here.

It has also not approved a RM1.5bil loan as previously claimed. The EPF has also outlined strict terms for the loan to protect its contributors' money. This includes a security guarantee of 2.67 times and requiring a financial institution to manage the money, and not the Federal Territory Foundation, which runs the scheme. here

Minds are like parachutes; they work best when open. -Lord Thomas Dewer