Independence urged for loan scheme

Specialist financial services firm, Genworth Financial, has backed calls for any universal mortgage insurance scheme to be independently-backed, rather than guaranteed by the State.

The practice — which sees mortgage lending risk shared between lenders and either Government or private insurers — can lead to lower interest rates, more affordable mortgage loans, lower arrears levels, less risk to lenders and greater access to the housing market for first-time buyers.

Finance Minister Michael Noonan is considering introducing such a scheme — already widely used in North America, Australia and parts of mainland Europe — as part of the Government’s ‘Construction 2020’ strategy plan. It would be directly aimed at high loan-to-value mortgages, where the borrower has a low deposit level.

However, on the back of figures showing a jump in mortgage draw-downs in the second quarter of the year, opposition politicians last week, urged stricter lending controls and avoidance of a “credit free-for-all”. Independent TD, Stephen Donnelly, expressed concern over the potential for the Government to offer a State guarantee to first-time buyer deposits on 95% mortgages.

The IMF has previously said the State shouldn’t act as guarantor and Genworth agrees. “It wouldn’t make sense for the State to take a role as a direct guarantor, or insurer, of Irish high loan-to-value mortgage risk. This would expose the taxpayer to unnecessary risk and would be better left to the expertise of regulated and well-capitalised private mortgage insurers, who have a track record of experience of these schemes in other countries,” said Simon Crone, vice-president for mortgage insurance at Genworth Financial Europe.