Treasury must protect taxpayer from MIG risk

Robyn Hall

March 22, 2013

Genworth wants to see the private mortgage insurance sector take the first loss position, to pay out any claims made by lenders before the tax payer is asked to put his hand in his pocket.

Simon Crone, vice president of commercial at Genworth, said: “There are plenty of successful examples where private mortgage insurers sit ahead of the tax payer, it’s a proven model. We only need to look at Canada, it survived a global crisis without any issues and the flow of credit to first and second-time buyers has remained strong throughout. And given that the government regulates mortgage insurers it can dictate how big that buffer should be between the lenders and the taxpayer.”

If the UK copied the same system, the government would only need to step in if the insurers became insolvent.

Crone said the private insurance sector has the capacity to support the Chancellor’s aspirations for £130bn of mortgage lending under the scheme.

He said: “There is enough capacity to support that level of lending over the next three years.”

However the government backed MIG scheme is still in its infancy and will be developed further following analysis and discussions with the industry.

Crone added: “We hope that given some of the questions that are being asked around tax payer liability, the government will think about how it can reduce that liability by looking to proven international models for inspiration before finalising any details.”

And industry commentators believe it is unlikely that a 5% risk retention will be sufficient ‘skin in the game’ to incentivise lenders to maintain prudent underwriting principles, therefore increasing the risk of mortgage defaults and a need to claim on the guarantee.

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