The Hindu Business Line : Ninja and Dinky

No income, no job and no assets (Ninja) is a popular acronym doing the rounds, though for wrong reasons. Those in the know aver that the US financial meltdown triggering off a worldwide contagion has its origin in Ninja.

The US mortgage finance companies buoyed by the burgeoning real estate prices over the years had thrown caution to winds and relied solely on the collateral, the house to acquire which the loan was sought. And when the real estate bubble burst it took a heavy toll on such companies with the Ninja category, euphemistically described as sub-prime loans, reneging on their repayment obligations.

Liquidity driven

Perhaps, everyone having anything to do with the financial markets should be given a primer on science — what goes up has to come down. In India, the financial world, including the financial press, rhapsodizes when the share market booms and sulks when the markets tank, little realising that more often than not the root cause in either case is liquidity rather than fundamentals.

A liquidity driven boom be it in the real estate market or in share market is bound to be punctured sooner or later. This fundamental lesson was sadly lost on the US mortgage companies somehow. When cupidity takes control, senses take leave.

The Indian mortgage companies in comparison have been more down to earth and sober. For them, Double Income No Kids Yet (Dinky) is the more appealing acronym. Ever since housing loans were actively encouraged in the early 1970s, the accent has been on repaying capacity rather than the realisable value of the collateral.

Banks in India have a tradition of being conservative and retaining a heavy margin whenever lending on the strength of collateral. This is as it should be. A youngster in his mid-twenties raring to go therefore gets a generous housing loan than a person on the wrong side of fifty, even if the latter earns much more than the former and his mortgage asset provide a greater cover on the loan.

In fact, housing finance companies in India encourage double income earning couples with or without kids to go for a joint loan to enhance the loan amount, a desirable credit enhancement technique. A joint loan presupposes joint ownership of house and joint ownership is conducive to filial relationship and estate planning.

For the housing finance company, it ensures uninterrupted repayment of EMIs. The US mortgage companies ought to have taken a cue from ours and adopted Dinky as mantra and dropped Ninja like a hot potato which it has proved to be in hindsight.

Joint loans

Alas, if only they had the foresight to know that Ninja could explode on their face one day. One does not know whether joint loan applications are common in the US. It would be instructive to know though. Joint ownership of a lifelong asset intuitively is likely to foster lifelong relationship at the pain of partition or untimely sale of the property. Thus its virtue also lies in cementing nuptial ties.

The income-tax law in India also does it bit perhaps unwittingly to encourage joint loans by couples — both of them become entitled to claim repayment of principal up to Rs 1 lakh as deduction from the gross total income.

Perhaps, more needs to be done in the direction of timeless togetherness. We have a system of joint passports where husband and wife travel under the same document abroad. The income-tax law can go a step further and allow a generous tax rebate to couples filing a joint return so as to bring down their overall tax bill and bond their relationship.

The then Prime Minister Indira Gandhi while ushering in her aborted move to make couple as an unit of assessment said tongue firmly in cheek that those united in the heaven should not be separated on the earth.

Ninja might have been the US’s nemesis but the metaphorical Dinky could be its deliverance.

(The author is a Delhi-based chartered accountant. blfeedback@thehindu.co.in)

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