How the middle class is losing its homes

As banks start sending foreclosure notices to defaulting home loan borrowers, the central questions are: just who are the people losing their homes, and what do they plan to do now?

DNA has tracked and analysed trends in foreclosure notices which have been flooding newspapers since December, 2008. Most of the houses are from suburbs beyond Borivli extending up to Palghar. On the Central side, they range from Thane to Karjat. People who bought their houses in Navi Mumbai at half the price of Mumbai are slump victims as well, with thousands of houses from Vashi, Kharghar, Belapur and Panvel figuring on the foreclosure and auction lists.

The analysis clearly suggests that many of those who defaulted had overextended themselves by taking on loans that swallowed up a huge chunk of salary. They did this because they aspired for something better - better quality homes, schools, shorter commutes. They also assumed that salaries would continue to zoom, and hence it was wise to take on a larger loan burden.

Take the case of the Sharmas (names changed on request). After shifting from a Haryana town following a job promotion, the dual-income family of four should have lived comfortably on a monthly income of Rs75,000 and an EMI of Rs15,000 per month. But in a move to improve the quality of life, they shifted to “must-have” house in Navi Mumbai with a stiffer EMI of around Rs 45,000 a month.

Sharma’s logic in taking on such a huge EMI burden is, “One is still young, one is doing well, one’s company is doing well, and, hey, India is doing damn well even as the United States is going down.” With the downturn, he has defaulted on EMIs and has now moved into a rented flat.

For another example, let’s take the case of Kishore Patil, who opted to shift from distant Karjat to Kharghar in Navi Mumbai so that he could work and live in Mumbai.” He chose a higher repayment slab of Rs28,300 immediately after his marriage. Just three years later, with costs mounting, he was forced to rethink his repayment capabilities. The key spikes in his budget were: repayment instalments for luxury items like a bigger TV and a better refrigerator, commuting by taxis, increases in the monthly household budget, eating out, and pricey annual vacations where photos could be shown off to colleagues and relatives.

Where do they now intend to move? Obviously this was too sensitive a question and the common refrain was a wry comment, 
“Somewhere affordable, never mind a longer commute.”

When borrowers cannot make ends meet, they just vanish. In an extreme case, Bank of Baroda officials are trying to trace one RK Patil, resident of sector 19 in Kharghar, to recover not just the home loan amount, but outstanding dues on credit cards as well, since November, 2008. They have opted to seal the flat and have pasted a notice on the door. One more candidate for a potential auction.