LMI credit in retreat
US-owned financiers call the shots in Australia's mortgage market. And three, former duopolists Genworth and PMI and the newly-licensed challenger MGIC, all have good reasons for reining in previous aggressive targets for Australia.
Genworth is said to be planning to limit, and may cease, the underwriting of mortgages in certain postcodes (mainly in south-western Sydney) - though only to non-bank lenders.
The rationale for targeting lenders such as Challenger is a record of above average arrears from this class of lenders.
PMI is making no parallel move. However, financial results for the company's US parent, published earlier this week, show that the average claim size increased (measured in US dollars) to $61,000 from $42,000 a year ago; that the loss ratio increased by 34 per cent in the first half of 2007 compared with the first half of 2006 (though it did improve over the June quarter); and that the default rate increased to 0.29 per cent from 0.16 per cent a year ago.
MGIC, which has had its licence in Australia for only a month or so, may be on the receipt of revised directions from headquarters.
At home, MGIC Investment Corp said it was looking at terminating its planned takeover of Radian Group in one of the most telling events yet in the escalating contagion arising from rising defaults in the US mortgage market.
Losses on Credit-Based Asset Servicing and Securitization LLC, an entity owned by Radian and MGIC, is the trigger for a review by management of MGIC, disclosed early yesterday. Radian said it believed MGIC was obliged to complete the deal.
The heat has to be on each of Genworth, PMI and MGIC to clarify the extent of any hit to profits (even if on the low side) from Australia in the short term and to temper their risk limits at the peak of a second surge in housing credit and housing prices in Australia.
And while early rumblings of a change in attitude relate to local property markets that began hurting years ago and also relate so far to non-bank lenders, you'd have to expect mortgage insurance companies to pull the leash even further.
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14 August 2007.
Peter Hall, Country Executive & Director, Genworth Financial, Australia & New Zealand, writes:
I write regarding your article of 9 August 2007, in which you wrote "Genworth is said to be planning to limit, and may cease, the underwriting of mortgages in certain postcodes (mainly in south-western Sydney) - though only to non-bank lenders".
We have not and will not entertain cessation of writing lenders mortgage insurance in South West Sydney. Today, we are creating more homeownership opportunities and providing more insurance to more Australians in every corner of the country than ever before.
In fact, new Genworth insurance written in Australia through to June 2007 exceeds 220,000 mortgages of which, approximately 20% are in the Sydney metropolitan area.
That said, we always endeavor to ensure that all our lender partners and their channels maintain prudent risk management practices that operate in the interest of helping homebuyers get into homes that they can afford to stay in.
We do not insure loans where there is a reasonable expectation that an applicant will not have the ability to repay their mortgage. Historically, we have declined to insure approximately 5-10% of the applications we receive from lenders - this has nothing to do with geographic location but is assessed on the basis of each individual application. We believe this is responsible risk management that protects prospective homebuyers from putting themselves in a situation that could result in loan delinquency or foreclosure.
Our ultimate goal is to help homebuyers succeed.
As I stated under oath at the Parliamentary Inquiry into Housing Affordability last week, our mission is to create home ownership opportunities for Australians who choose not to, or cannot afford to, make large deposits when purchasing a home. Over the last 40 years, LMI has played a significant role in assisting First Home Buyers and other Australians into homes they can afford sooner.
It is unfortunate that we were not contacted regarding this article, as it has caused considerable concern amongst some lenders and borrowers. I thank you for agreeing to publish this clarification and again invite you to contact me at anytime should you wish to clarify or verify any aspects of the current debate about housing affordability and LMI.