The re-entry of the Australian government into the supply of mortgage insurance to lenders is one policy option proposed by economist and financial intermediary Nick Gruen, in a paper for the Whitlam Institute.The government operated in this market for almost 40 years from the early 1960s, through the Housing Loans Insurance Corporation, an entity first slated for privatisation in 1990 and eventually sold, to GE Capital, in 1999.GE, now known as Genworth Financial, still dominates this segment in Australia, with QBE Lenders Mortgage Insurance the second provider in what is a near-duopoly. Gruen argues that the sell-off of HLIC reduced competition in the sub-market for mortgage insurance and "exacerbated rather than ameliorated the competitive disadvantages suffered by securitisers compared with banks, perhaps substantially so."Lenders' mortgage insurance remains essential on all home loans with a loan-to-valuation ratio of more than 80 per cent advanced by a bank or credit union. It remains almost universal on loans originated outside the banking system.Genworth still accounts for more than half of this market, with premium revenue last year of A$560 million. QBE LMI generated $231 million in premiums.Gruen argues in his paper that "explicit government insurance against catastrophic risk would provide a way of building a market that commoditises low risk lending not just in practice but also in pricing."Once such risk had been explicitly priced and paid, such loans could circulate as securitised pools in the wholesale market at very low margins. "Those margins would no longer reflect any risk of default - this having been fully passed to the insurer - and the price of provision of a low LVR mortgage could be expected to fall to the full cost of managing lenders' liquidity and administration."This could be done at a fraction of the margin charged on loans today."