Mortgage insurance underwriting tightening nears end

The tightening of underwriting standards by mortgage insurers Genworth and QBE LMI is close to its end but there is no prospect that standards will be loosened any time soon.

Since September last year mortgage insurers have cut the maximum loan to valuation ratio they will cover, first to 95 per cent and then to 90 per cent a couple of months ago; they have increased the information requirements for low doc borrowers; and they have imposed a requirement for deposits to include some "genuine" savings.

Genworth's US parent disclosed in an investor briefing in May that the Australian group had taken steps to reduce new business volumes in "recession sensitive geographies".

Genworth chief executive Martin Barter said there might still be some fine tuning but the tightening cycle was close to its end.

Barter said there were some positive signs in the mortgage market but in the face of rising unemployment there was little prospect that current settings would be eased.

Genworth is also concerned about the prospect that the first home buyers who have rushed into the market this year may find themselves overexposed to high levels of debt when rates start to rise again.

According to the latest Genworth Mortgage Trends Report the household debt burden has eased and fewer people are reporting that they are stressed.

The proportion of people who report that 50 per cent or more of their income goes to debt servicing has come down from 25 per cent in 2008 to 17 per cent in the latest survey.

The number of people who struggled to make mortgage payments "during some months" fell from 23 per cent last year to17 per cent.

Barter said these positive indicators were offset by forecasts of rising unemployment through to 2011.

He said it was also a matter of concern that first home buyers, in their rush to take advantage of the First Home Owners Boost, were taking on bigger debts.  

"The average loan size for first home buyers has increased by $16,800, or 6.4 per cent, since the FHOB was introduced in October last year."

According to the Mortgage Trends Report, 19 per cent of first home buyers expect to have problems servicing their loans in the year ahead.