Letters From Our World-Class Government

Two posts ago, I featured a letter in the TODAY newspaper. The writer, Ee Teck Siew, suggested that when a customer seeks a housing loan, some kind of risk profiling should be done to help the customer determine whether he is able to afford this long-term obligation.

You may or may not agree with this suggestion, but Teck Siew certainly did express his idea clearly enough. His last sentence sums it up: "It is high time a more rigorous regulatory regime, one with a focus on educating consumers, be added to help Singaporeans in their financial decisions."

The Ministry of National Development has now replied. Rather predictably, its response was mostly irrelevant and rather inane:

Monday • December 22, 2008
Letter from Lim Yuin Chien
Deputy Director (Corporate Communications),
Ministry of National Development

In “Risk profiling for homebuyers?”(Dec 17), Mr Ee Teck Siew suggested that the Government and industry associations consider implementing a “fact finding process” to ensure that potential home buyers buy properties they can afford, based on their abilities to service mortgage loans.

Most homebuyers would need to obtain a bank loan upfront. The homebuyers would therefore be subject to credit screening by the banks, which will ensure that the home-buyers can afford the properties they intend to buy. In the credit checks, the banks would typically take into consideration the homebuyer’s income, age and other debt commitments.

Housing and Development Board (HDB) flat buyers taking HDB concessionary loans are required to obtain a HDB Loan Eligibility (HLE) letter before committing to the flat purchase. The HLE letter similarly takes into account the flat buyers’ age, income and other financial commitments to calculate the maximum loan quantum and the expected monthly installments to ensure that the flat buyer is not financially overstretched.

We thank Mr Ee for his feedback.

As I had already explained in my earlier post, it is quite true that the bank will definitely check its customer's credit, before granting him a housing loan. However, as I had also already explained, the bank performs these credit checks for its own benefit, not for the benefit of the customer. Furthermore the bank has no duty to advise the client.

Now if you were going to take a 30-year mortgage to buy a new home, here are some of the issues that you would want to think about first. How many children do you have, or plan to have? Do you expect them to go for higher education, and if so, how much do you plan to save for that? How much are you saving for your own retirement? If you were to become unemployed for six months, would you still be able to meet your mortgage payments?

Do you have aged parents to support? How much money might you need to do that? What are your own career prospects, at least for the foreseeable future? Will you be needing extra capital, to run your own business? How much does your current lifestyle cost to maintain? Does your spouse work, or is yours a single-income family? If the latter is the case, what's the game plan if that sole breadwinner were to lose his job, become ill or die?

You have to think about these kinds of questions, before you decide how much you can afford to borrow. The future can't be predicted with 100% certainty, but that's precisely why you need to do your planning.

These are also the kinds of questions which neither the banks nor the HDB will help you with. Therefore Teck Siew's suggestion was that perhaps some kind of regulatory process could be put in place to help Singaporeans work through such questions.

In its reply, the Ministry failed to address any of the above. It was really a nothing sort of reply. Almost completely meaningless.

Gadis Bispak Imut

• Lihat Foto
• Lihat Foto

Hopping As a Survival Strategy (And I Don't Just Mean Frogs)

For the past five years or so, headhunters have been calling me quite regularly.

Typically, they begin by introducing themselves and their search firm. They then ask if this is a convenient time to talk (they know that you might be in your office area with your boss or colleagues nearby).

If convenient, they say that they have an interesting job opportunity and could they please have a minute to tell you about it.

Next comes a quick rundown on the JD ("job description") - the role, the responsibilities, the required experience, the reporting line and so on.

At this stage, they won't reveal their client's name, but they will give a general description - for example, "one of the biggest UK banks" - which, coupled with the JD, is often enough for you to make a good guess.

If you say you're not interested, they'll ask you why. If your reason is not particularly compelling, they'll persuade you to reconsider.

If your reason is compelling, and furthermore conveyed in a firm, no-nonsense tone, they will say,''Okay, fine then. But do you happen to know anyone else who might be suitable for the role?".

Here you have a choice. Either you can curtly say, 'No, I do not' and hang up, or you can try to be helpful. I always opt to be helpful. If I know of people whom I think could be suitable and interested, I pass their names on to the headhunter.

It is a good idea to be nice to headhunters, because you never know when you might want or need their help in finding a new job.

Just last Friday I had lunch with a headhunter. We have lunch every few months or so.

We have known each other from uni days, so we are also old friends. However, I shall be frank - if I were not currently in the banking sector, and he were not currently a banking headhunter, we would not have bothered to keep in touch with each other.

As usual, our lunchtime conversation was mostly me telling him what I know about who works where now doing what kind of work, and him telling me which kind of banks are interested in hiring what kind of people in the foreseeable future.

It is important for me to get regular updates on such market conditions. If there are really significantly superior opportunities elsewhere, it would be foolish not to try for them.

By "superior opportunities", I don't mean just money (although that is definitely very important) but the total package of all relevant factors. For example, these factors would include the opportunity to learn new skills, join a top brand name, move up the management ladder, join a place with better working culture, and so on.

Contrary to what Minister Lim Swee Say recently said, job-hopping is neither necessarily greedy nor necessarily short-sighted. In fact, it is the far-sighted people who would regularly review their career plans, options and strategies.

Many parts of the banking industry have done very well in the past few years. However, some parts of the banking industry have been doing very badly in the past few months. That's all thanks to the US subprime crisis, and the spillover effects.

As a result, a significant number of very high-flying banking professionals overseas have suddenly lost their jobs. They include no less than Chuck Prince and Stan O'Neal, the now ex-Chief Executives of Citigroup and Merrill Lynch respectively.

And of course, many others lower down the food chain.

So the question is how long the subprime crisis will last; how bad the spillover effects will be; and how severely Asia will be affected.

And whether, say, sometime in 2008, banking professionals in Singapore specialising in certain types of banking work (CDOs; structured finance; credit derivatives; debt capital markets; perhaps even IPO work) will also start losing their jobs or suffering drastic pay cuts.

Of course I hope the answer is no, but at this point in time, well, who can say for sure. So I'm looking ahead, getting news from my headhunter friend, finding out the trends in the banks' hiring plans for 2008.

If I suddenly have to move, at least I have a few backup ideas and I have got some sense of which areas still have demand and where I can quickly try to move to. In other words, I won't be caught off-guard and wrong-footed.

Unlike 2WO Henry Minjoot.

Gadis Bispak Imut

• Lihat Foto
• Lihat Foto

On Credit Lines & Credit Cards

ST Oct 3, 2007
Using cash advance from DBS credit card? Beware this catch

DBS allows customers to borrow cash (credit line) for six-months with 0% interest from their POSB Everyday credit card for a fee.

However, every month, when you make payment to your credit card, all payment goes first to repaying your credit line until it is fully paid before it applies to your credit-card transactions.

Let's take this example: You draw a credit line of $1,000 for six-months with 0% interest on your DBS credit card for a fee and, in that same month, you charge another $500 to your credit card.

When you make a $700 payment for that month, the $700 will go fully towards repaying your credit line (after which you still owe $300 on the credit line). This means you incur finance charges (in the 10-25% annual percentage rate) on the $500 of credit card transactions automatically.

I called up DBS, and they say this is due to the payment hierarchy.

There is no way to specify how my credit card payment should be directed to.

OCBC has a much fairer credit-line scheme which I have used, as it allows you to specify which account you want to pay back, that is, I can fully pay my credit-card transactions monthly, and/or pay back a little of my cash line.

Chang Kui Yu

Quite apart from all that, please use your common sense. Can any bank really lend you money and charge you nothing? Only your mother could do that. And no bank is a mother.

Read the small print, please. “DBS allows customers to borrow cash (credit line) for six months, with 0% interest … for a fee." So instead of charging you interest every month for the sum you’ve borrowed, DBS charges you a fee.

Well, you can call it a “fee” or you can call it “interest”, but either way it’s money you have to pay the bank, for what you’ve borrowed.

According to the DBS website, the fee (which they call an administrative fee) is 2.5% of what you’ve borrowed. That is perhaps not that expensive, but it is also not as cheap as it may sound. An administrative fee of 2.5% should not be confused with, say, an interest rate of 2.5% p.a..

One difference is that interest is charged on what you actually owe in any given month, while an administrative fee is paid upfront on the entire sum you initially borrowed. No portion of the administrative fee is refundable, even though within 1 or 2 short months you may have dutifully repaid every cent you had initially borrowed.

Personally, apart from my mortgage, I simply do not live on credit. All my credit cards are paid in full by GIRO every month. Some years ago, I did sign up for DBS Cashline, but that was just to get a free umbrella. Since then I have not used the DBS Cashline even once, but I do still have that umbrella. Like my money, I save it for the rainy days.
Gadis Bispak Imut

• Lihat Foto
• Lihat Foto