Mortgage Guarantee Company Registration

Mortgage company registration is a process that allows businesses to register with the RBI to operate as a mortgage guarantor on behalf of borrowers.

The list of documentation requirements for a mortgage guarantee company registration is as follows:

1. A copy of the certificate of registration (CoR) with the RBI.
2. Permanent account number of the company.
3. KYC of the directors and shareholders.
4. A fit and proper declaration of each promoter.
5. Bank account details.
6. A lease agreement as proof of business address.
7. Memorandum of Association.
8. Articles of Association.
9. Copies of balance sheets and income statements.

The main requirements are as follows:

1. It must be a registered company under the Companies Act.
2. A net-owned fund of INR 100 crore.
3. CRAR ratio must be at least 10%.
4. All directors and promoters must pass the “fit and proper” principle.
5. If the company has obtained funds through foreign direct investment (FDI), it must comply with the FDI and FEMA Act.

The key reasons to apply for the mortgage guarantee company registration are as follows:

1. It expands your business opportunities with digital lenders, financial institutions, and banks.
2. You can enhance your brand’s image through authentication with the Reserve Bank of India.
3. Customers opt for lower interest rates, which is possible for lenders partnering with mortgage guarantee companies in India, who take over the risk from lenders.

You must have at least INR 100 crore as net owned fund (NOF) during the application process. The same should be maintained through the company’s business journey.

Your certificate of mortgage guarantee company registration will be revoked by the RBI if you:

1. Cease to operate as a mortgage guarantee company.
2. Have shown non-compliance with the central banking authority’s rules and regulations.
3. Fail to honour claims from the contract of guarantee.
4. Demonstrate continuous non-adherence to the RBI’s master directions.
5. Have not submitted monthly and quarterly declarations to the RBI regarding non-performing assets, financial statements, and books of accounts.
6. Fail to cooperate with the central banking authority during an inspection or interfere with the inspection process.

TYes, some top companies that provide mortgage guarantee services are as follows:

• National Housing Bank (NHB)
• Indian Mortgage Guarantee Corporation (IMGC)
• Genworth Financial India
• HDFC Ergo General Insurance Company
• SBI General Insurance Company

The key characteristics of a mortgage guarantee contract are as follows:

1. All agreements and contracts must be made under Section 126 of the Indian Contract Act of 1872.
2. The guarantee must be unconditional and irrevocable, and free from any type of coercion, fraud, misrepresentation, or mistake in accordance with the Indian Contract Act of 1872.
3. The guarantor must pay the amount as guaranteed by the agreement without any adjustments.
4. The contract must be a tri-partite contract between the borrower, the lending institution, and the mortgage guarantee company.

The key compliance mandate by the RBI for mortgage guarantee companies is as follows:

1. The company should maintain at least 10% of CRAR on its balance sheet.
2. For tier-I capital, the mortgage guarantee company must maintain at least 6% capital adequacy ratio.
3. Any single guarantee shouldn’t exceed more than 10% of their tier I and II of the business’s capital.
4. The company should ensure to raise funds in the manner as prescribed by the RBI, meaning it should abstain from accepting public deposits or commercial external borrowing.
5. The corporation must establish a contingency reserve and retire at least 40% fees earned through the business or 25% of the profit each year.
6. The contingency reserve must be built up to a minimum of 5% of outstanding guarantees for 7 subsequent years.
7. The company must follow the ICAI accounting rules and standards.
8. The directors should ensure that they create a provision for invoked guarantees and losses that are incurred but not reported.
9. The mortgage guarantee company must restrain from guaranteeing loans with at least more than 90% value (LTV).
10. An audit committee must comprise three non-executive directors, with at least one of them being a Chartered Accountant.

The following are the funding opportunities that can help with mortgage guarantee company registration:

• A mandatory 26% via promoter equity.
• Foreign direct investment (FDI) through the automatic mode.
• Private or public equity.
• Indian banks.
• Private placement through bonds and debentures.
• Subordinate debt.
• Retained earning.

A mortgage guarantee company is restricted to guaranteed unsecured loans, commissions, and rebates. They’re also prohibited from guaranteeing the loan of a related party.

To know about the mortgage registration fees in India, talk to our experts at Enterslice.

Yes, a foreign company can start a mortgage guarantee business in India, but it must first incorporate an Indian company, meet strict regulatory requirements from the Reserve Bank of India (RBI) for foreign investment, and obtain a certificate of registration. While 100% foreign investment is allowed, the foreign company's controlling interest is subject to RBI's approval to ensure operations are not against public interest.