With RM23BILLION of credit card debts and only 30% of Malaysians pay up fully their monthly credit spending, the government is not worried about defaulters? You are playing with fire loosening up the credit system, if Bank Negara can’t even sniff RM888 BILLION going out illicitly, what kind of control you expect? And this First Home scheme will even allow borrowers to take up loans with monthly instalment upto 50% of their monthly salary! What are we seeing – subprime crisis in the making. But the PM apparently is not looking…
Cagamas is set to become our very own Freddie Mac and Fannie Mae, with a less cool name, that is!
(Source: The Malaysian Insider)
KUALA LUMPUR, March 9 — Datuk Seri Najib Razak said today that there is no risk of the market being flooded by cheap loans from the new first-home ownership scheme and causing a US-style sub-prime crisis in the country.
The prime minister said in a press conference that the sub-prime crisis in the US was caused by lax lending practices and the central bank will ensure that Malaysian banks will not repeat the same mistake.
“No. That’s because they didn’t take into account the capacity of the borrowers to pay back and they were over-lending in a very irresponsible manner,” Najib replied when asked if the first-home ownership scheme will risk triggering a US-style sub-prime crisis. “In our case, there will be very tight supervision by Bank Negara.”
The government’s My First Home Scheme launched yesterday will enable young adults aged up to 35 and earning less than RM3,000 to get 100 per cent financing to buy houses worth between RM100,000 and RM220,000 with a repayment period of up to 30 years.
The US sub-prime crisis, which helped usher in the global financial crisis, was caused by the widespread availability of easy loans that were hit by high default rates once the US property bubble burst around 2007.
Low interest rates coupled with loose terms and conditions, such as no down payment, had encouraged borrowers to assume mortgages that were larger than what they were able to service once the property bubble burst.
Analysts were mixed on whether the first-home ownership scheme would risk creating sub-prime conditions.
Dr Yeah Kim Leng, chief economist at RAM Ratings said that there was little risk as the parameters for the loans — such as a maximum mortgage value of RM220,000 — are well defined unlike in the US.
“In crisis-hit countries, there was no limit,” he noted.
He added that the scheme would serve a useful social function as the cost of housing has spiralled beyond the reach of many, if not most, young adults.
He suggested, however, that the government and banks ensure that the houses bought under the scheme are by genuine buyers and not for speculative purposes.
One economic analyst told The Malaysian Insider, however, that the scheme comes with risks of a debt default crisis as a property loan is a large commitment and many young adults have trouble even handling their credit card debt.
The analyst suggested that the government look at measures to make property prices more affordable instead, rather than a 100 per cent financing scheme.
The scheme also comes at a time when household debt is at relatively high levels driven by a growth in borrowings to buy property.
Malaysia’s household debt rose 8.4 per cent from RM516.6 billion at the end of 2009 to RM560.1 billion in August 2010, according to CIMB Research.
As a percentage of GDP, household debt increased from 66.7 per cent in 2004 to 76 per cent in 2009.
The share of household loans to total bank loans, meanwhile, rose from 35.2 per cent in 2000 to 55.5 per cent in August 2010.