Who owns Real Estate Loans in India?

I've been waiting for some official confirmation of the bursting of the real estate bubble in India. Although bursting of the bubble (or even the existence of it) is still just hearsay, it is widely accepted that Indian real estate market is stuttering (to put it the best way I can). This article in New York Times ( http://www.nytimes.com/2008/04/14/business/worldbusiness/14real.html?hp ) puts the depreciation in New Delhi and surrounding areas at 20%. I thought this is a good time to do a followup to my first post on Indian real estate which appeared in IEB and also was the first post for this blog.

In the midst of the bursting housing bubble in US, UK, Spain, Ireland ..etc., sub-prime has become a common word (it also was nominated as the word of the year). There is a lot of good articles, blog entries and web sites explaining the whole life cycle of a mortgage loan(s). How they are converted to Mortgage Backed Securities (MBS) and packaged as Credit Default Obligations (CDO) and sold to hedge funds, central banks across the world, private investors and investment banks. Although it is not exactly known who owns how much of the toxic mortgage loans, atleast we know what happens to these loans in a general sense. This is very important in the current scenario for any kind of safe investment in the stock market or even to have a decent understanding of the current complex derivative based economic environment.

I've been trying to find out what happens to a mortgage loan made in India. Does the bank own it? Or does it sell it as MBS? If they sell it as MBS who buys it? With ICICI, HSBC ..etc making huge number of mortgage loans what are their chances of withstanding a 20-50% crash in real estate prices in India. Does India also have fractional reserve banking system?

With the foreclosure process in India not that well defined who will end up holding the bag?

All these questions arise only when we assume a deflating housing bubble. I know many readers still feel that there is no housing bubble in India. Let us keep that aside for the time being and let us assume hypothetically that there is a bubble in India and it will deflate 20-50% and and try to answer the following

• What does ICICI/HSBC do with a mortgage loan they issued?
• Are there any organization/corporation equivalent to Countrywide/New Century whose main role is issuing mortgage loans?
• Are mortgage loans in India securitized and sold?
• If yes to the above question, who are the buyers of these securities?
• Is a good foreclosure process possible in India?
• What happens when someone defaults on a home loan in India?

I've done some (re)search and I will sum it up in the next post.

Annam