WHAT TO DO IF A BANK CALLS YOUR HOME LOAN
False declaration of the use of property and heavy cryptocurrency trading can lead to a mortgage recall, but it is not the end of the world
For homeowners on a mortgage, a bank calling your loan is probably the worst nightmare. For those who rent out a flat on mortgage insurance, or cryptocurrency aficionados, the call may come sooner than others. However, there is a solution.
Theoretically, banks have every right to call loans anytime, as stated in the loan facility letter. In reality, a loan recall is extremely rare so long as one repays on time and fulfils the terms of the agreement. Even during a property market drop when loans become negative equity for banks, they tend to wait it out.
Recently, we have observed two scenarios that could cause a bank to recall mortgages.
The first is when one breaches the use of property declaration. The property must be selfoccupied by borrowers of mortgages with a loan-to-value (LTV) ratio above 50 per cent as the
Hong Kong Monetary Authority (HKMA) requires. Renting it out could lead to banks demanding full repayment, especially for loans covered by the mortgage insurance programme, that is, a loan with an LTV ratio higher than 60 per cent.
Borrowers must declare property use when applying for the mortgage insurance programme. After drawdown, banks and the Hong Kong Mortgage Corporation (HKMC), under the HKMA, periodically require borrowers to redeclare selfoccupancy with proof, such as providing utility bills registered with the owners’ name.
False declaration is a criminal offence. Multiple mortgage borrowers were sentenced to jail recently for claiming the house as personal use when it was rented out. When the property is no longer self-occupied, an honest declaration could save you from criminal proceedings. Banks, though, may recall the mortgage if it ceases to conform to the owner-use terms.
It is an established practice to require continuous declaration of self-occupancy throughout the loan period. Yet with the government’s enhanced effort to rein in property speculation, banks and the HKMC have stepped up enforcement of such requirements.
In the past, banks only randomly chose some mortgage insurance programme clients to redeclare use of property. Lately, we have seen some banks extending these requests to all such borrowers every year. It is far more difficult for homeowners to discreetly rent out the flat and repay the 90 per cent bank financing with rental income.
Your bitcoin investment could also cause your loan to be recalled. We have witnessed banks closing bank accounts with heavy cryptocurrency trading, naturally terminating the account owner’s mortgage.
Trading digital currency is a risky activity for banks, as it is a hotbed for money laundering. A transaction associated with bitcoin or other cryptocurrencies could alert lenders to take action without prior notice.
Customers could trade cryptocurrency on a customer-tocustomer level, where the money is directly wired to the unknown buyer/seller’s bank accounts. However, one must be vigilant since the counterparty may be involved in money laundering and already on the watch list of anti-money-laundering bodies for perpetrating frauds and scams.
Dealing with such a person and having money go back and forth can lead to banks severing ties with you, even when you have nothing to do with laundering.
Following the financial crisis in 2008, banks paid enormous fines for failing to detect money laundering. Now, they err on the side of caution and are prone to de-risk any doubts from customers’ activities. If the bank account is closed, so is the mortgage associated with it.
If you really want to embrace high-risk, high-return cryptocurrency investment, trade it with a more crypto-friendly bank instead of your mortgage lender.
What if the bank does recall your mortgage? Relax, it is not the end of the world.
One can simply refinance the mortgage with another bank. The initial bank usually gives ample time to complete refinancing after announcing a loan recall. One point to note is that if your loan is covered by the insurance programme with an LTV ratio above 60 per cent, you will need to refinance the loan with another mortgage insurance company to keep the coverage.
At the moment, there are two mortgage insurance companies in Hong Kong, the HKMC and QBE. Assuming your original loan is covered by the HKMC, try switching it to a bank tied to QBE.
Multiple mortgage borrowers were sentenced to jail for claiming the house as personal use when it was rented out
Raymond Chong is chief executive and founder of mortgage referral brokerage firm StarPro Agency
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