Low Mortgage Insurancelow-level mortgage insurance
This should above all help first-time purchasers to obtain low-paid mortgage loans and bring them to the real estate managers - this happened at credit level far below normal and for real estate that was also valued below normal. However, there are still some divergent votes who believe that HTB2 contributes to the "bubble" in London and the southeast, and the proposal is that it should be changed or, as some say, deleted outright.
In the Queen's speech, the authorities rejected these appeals and undertook to follow the programme. But there will come a point - and it is growing nearer every single passing shift - where we need to look beyond public funding for high LTV mortgage loans and look at the exits needed to get away from a state guarantees.
If the British authorities are looking at how they can get out of the system, they would do well to look at the other side of the globe. In fact, to Australia, which has long used mortgage insurance to reduce the credit risks of mortgages, encourage credit and facilitate home ownership.
As early as 1965, the Australia authorities set up HLIC (Housing Loans Insurance Corporation Ltd) to offer mortgage insurance to creditors and to help certain borrower with restricted deposits obtain a mortgage at a reasonable price. HLIC has been very succesful over the past few years in supporting first-time purchasers who climb the residential ladder and manage a high LTV mortgage exposure.
In 1997, however, a regulatory re-examination of the finance industry, which was carried out to make sure that the mortgage markets would operate under competition-neutral conditions, suggested that the most appropriate course of action would be to privatise them. It was noted then that'there were no reasons of general interest for state ownership' and therefore the tax-payer's exposure should be shifted to the consumer instead.
By 1997, a General Electric (GE) affiliate acquired HLIC's stock from the Australia authorities and began to take out its own mortgage insurance. LMI's 2004 operations in Australia were part of the group of businesses that GE divested to the general public via Genworth IPO and are now the premier mortgage insurance company in Australia.
It showed the actual effects and extent of the mortgage insurance markets in this state. Instead of a state system of guarantees, the mortgage insurance in Australia now comprises two large mortgage insurance companies (Genworth and another) and a small number of insurance caps from creditors, two of which are the largest in Australia.
This captive insures a large part of its commitment to insurance and reinsurance companies in the consumer goods industry. Mortgages insurance is not compulsory in Australia, but almost all creditors cover credits over 80 per cent LTV, and they usually look for pool insurance for a low LTV loan book.
And it was this mortgage insurance and loan mitigation mindset that made the Aussie finance system one of the most robust during the global economic downturn. Indeed, the Reserve Bank of Australia stated in the 2008 F Stability Report that in 2007/08 Australia's mortgage insurance companies made sound gains due to the relatively steady development of the real estate markets.
We believe that what we might call "the Australia experience" shows that there is no need for government to pose significant risks to the taxpayer to reach their living goals. Naturally, it is not only Australia that is setting a number of interesting case studies for what the British post-HTB2 environment might look like. Canada's mortgage insurance industry pattern and story can also be a powerful and educational example of state-established guarantee schemes developing into both a powerful government and lenderplace.
Whilst the German Confederation continues to be heavily engaged in the mortgage business through its own use of mortgage insurance and securitisation, there are more and more demands for a reduction of these risks and, as in Australia, for a higher transfer of risks to the consumer sectors. A recent OECD Economic Surveys Canada survey, released in June this year, asked for this publicly funded approach to be brought into the wider context of the consumer economy earlier, rather than later saying that "shifting more residential risks to the consumer would enhance fiscal stability" and that the degree to which the state of Canada was participating was "unusual" by global rank.
She suggested a transition to the privatesector, "which shifts the government's roll to one of ensuring only against disastrous damage". For those who suggest that this could lower the government's levels of scrutiny over supervisory credit approval levels, the paper disagrees: it thinks that this would not be the case because the administration would still "oblige all commercial insurance companies to comply with the rules in order to be eligible for the state guarantee".
As you can see, the current discussion of the UK Help to Buy programme is also taking place in those jurisdictions that have a much deeper and deeper story of the provision of government guarantee. Most of the similar offers in the EU mean that the traveller is moving away from taxpayers' risks and towards the personal option.
However, as mentioned above, this does not mean a lack of accountability nor does it mean that millions of lbs of state funds will be used to assist the delivery of mortgage loans in the UK. Therefore, we have also proposed that the residential mortgage insurance industry take its part of HTB2 exposure under a tailor-made re-insurance arrangement during the programme and become the exits road.
We would like our suggestions to underpin the full life of the system until the end of 2016 and beyond. Finally, the supply of high LTV mortgage loans is not just a transient issue - it is one that will persist if we do not make a plan to give creditors the trust to keep granting credit in this part of the mart.
This can be achieved through our specialist body of reinsurance companies, all of which have demonstrated their commitment to providing their significant ability to mitigate and control the risks arising to the taxpayer and to help control the potentially overheated markets. So if the British authorities are looking for a precedent on how to pave the way between their public bailout proposal and a privately owned option, they need look no further than their Commonwealth cousins.
Australasia offers a shaded delivery plan and a long-term approach to ensure that we do not move from a relatively high LTV products festival to a starvation. Important choices now need to be made and we urge all parties to consider these opportunities so that we can build a much more resilient mortgage business both in the years ahead and in the longer run.