Submissions from providers of MII to Oireachtas Finance Committee

You can watch live here.

Angel Mas from Genworth

Taoiseach opened our offices in Limerick - 400 employees serving the international market

We have covered 70,000 mortgages in Ireland since 2000

There must be proper supervision of high LTV mortgages

Benefits
REduces risk to lender
Lender puts up less capital, so the
The loan application is subject to a second

Lenders and insurers work together to keep people in trouble in their homes. Insurer making payments to facilitat restructure

We have facilitate restructure of 15,000 borrowers

We have paid €70m euro and expect to pay a further €40m euro in the future.

Benefits to consumer
It reduces the cost of credit to consumers
It helps keep them in their homes

Lenders dispensed with MII

If we had MII, the lenders would have saved €1.7 billion in losses

FTBs don't cause house price inflation . It's the higher value properties which drag up prices
FTBs should not be subject to restrictions

Joe Leddin and Steven from London Office of JLT

We are the largest construction insurance broker in Ireland

The solution is simple

The 80% LTV is a crude .

Who should carry the cost of MII?

The banks should pay for a policy which insures against a 30% fall in house prices.

All MIGs should be provided by a pool which have a minimum rating of A.

Our proposal would reduce banks's eposure to 70%

MIGs could be the Central Bank's thermostat.

MIGs prompt a flow of credit to builders in every market.

If 100% of the savings were passed on, mortgage interest rates could fall by 2%

Michael Bennett Arch Capital Group Florian Myer

$6.8 billion in capital. Bermuda based. NASDAQ quoted

Ratings: A1; A+;A+

Our mortgage insurance team has 370 employees worldwide

40 employees in Dublin

Regulated by CBI - authorised to issue this insurance throughout Europe

Insurance makes more capital available for lending

Mortgage insurer acts as a second pair of eyes

UK Help to Buy scheme has been a success.

CBI should provide guidance on the impact of insurance on banks' capital requirements.

EU rules only allow A- credit rated insurance to count.

3 components of cost
admin cost - the smallest component
Cost of capital
Expected losses

We believe that the (full?) cost of insurance would not be passed onto consumers

Michael McGrath

Where are you regulated?

Genworth: We are passported in.

Who is selling mortgage insurance at present ?
No one

Genworth - we have a legacy book.

Who pays?
Simon Crone A lender paid product. - a single one off payment
€200k mortgage would be €2,000 - €250 a year if passed on to borrower
10 points cover - from 90% to 80%
Covers 10 years - after which there is no economic risk

Should the consumer not know how much it costs?
In Finland, it is disclosed and charged to the borrower
But it might not be shown, although lower rates would not be seen either.

Our experience tells us that Irish lenders would not reduce the interest rates charged. Irish borrowers are paying 4% to 4.5%
In the UK. some do and some do not

What triggers a payout
Simon Crone
Various triggers
Repossessions
Unique circumstances in Ireland - it pays out along the line of rescheduling

Someone loses their job and falls into arrears. When can it be paid out?
The protection is for the lender. It's not payment protection insurance.
We have made accelerated payments, outside our contractual obligations, to the lender which they can pass on under MART.
We have supported the cost of the split mortgages.

So it's invisible to the borrower?
It's in our interest that borrowers stay in their homes and avoid a claim.
We have introduced global best practices to keep people in their homes.

If we stick with the 80% LTV, a borrower could borrow 90%

Yes.

Regina Doherty

How much uptake in other European countries?
How often are claims made?
Our banks already have insurance. We are proposing to penalise borrowers with more hidden charges.
The reason this is needed is that our banks can't borrow on the international capital markets.

There are several experiences
In Italy since 1995. Practially all the high LTV
In Finland, there was always MII. New regulation has been proposed. There is a "soft " cap. It's 70% to 75% but with insured exceptions.
In Canada. It's compulsory since the 50s.

It should be a lender paid product.

EVen when it's high LTV, it must still be high quality. We don't do insurance on sub prime loans.

FTBs are the first to suffer when there is a credit squeeze.

How much uptake is there in Finland ? in Canada? (she means claims?)
The claims are lower in Canada becuase they have had a good recession.
In spain, Genworth have paid €300m in claims
Loan books in Irland which had MII had a 30% better experience, because we second guess the loans.
Some lenders are comfortable with the risk they have and don't see the need for cover. That leads to concentration of risk.

Deputy Doherty

What do you think that the LTV ratios should be in Ireland - should it be 100% or 90% or 85%

We look at affordability , ltv and the type of mortgage - e.g. fixed vs. variable . Borrowers have difficulty in accessing deposit. I think you have to look at all factors and not put a hard figure on LTV.

Where the borrower does not contribute a deposit, there is much higher risk of default.

So less than 100%, but I would not like to be more precise

Finnish: 90% for second time buyers
Canada: 95%

(I missed a few minutes - Brendan)

One of the big concerns is that high LTVs will cause house prices to rise. a €225k cap will not help buyers in Dublin.

Most of our exposure in the UK is outside London and the South East.

The regulator can't regulate the market easily. A national mortgage insurance scheme could control the market through the availability of insurance.

We believe that caps need to be variable.

Genworth - when did you stop providing this. Youse were in the market during the boom. Yet these loans defaulted.

We only covered a few institutions. They became less competitive so they dropped it. That's why it must be universal. Good books suffer in bad times.

Banks could have lent to customers because they knew that they were not carrying risk . The person lost their house because your client lent them too much.

If a policeman and a nurse borrowed money. and one lost their job, was that reckless lending?
We have modified 15,000 loans - often a split mortgage.
How many were sold on?
Very few.

Our policy/products should align itself with the reschduling policies in Ireland

Senator Aideen Hayden

You are not a not for profit organisation. Why should the state not provide it?

The state should focus on private housing.

You said "the downturn in the 80s caused massive claims and insurance companies tried to avoid claims" (Seemed to be in the opening submission or maybe from her notes)

The industry has been learning . The cases you mention were not specialised lenders and had no specialised rules.

Basel II specifies high criteria for the insurance to be allowed for the capital .

Will the borrower know how they will deal with losses?

In the uK... (It seems that the Help to Buy is insured?)
We pay out after 24 months of default, irrespective of whether the loss has been crystalised

The claim event will be standardised

I want to ensure that this policy will not undermine MARP
Good point. It will enhance MARP.

MII aligns with MARP

From a borrower's point of view, you would decide and not the bank?
The lending decision is made by the lender but we agree their policies.

Help to buy in the UK has a lot of mixed reaction? It has pushed up prices and squeezed out other buyers. A product like this where there is tight supply, might just push up prices

It has helped to boost the supply by 25% in the UK, which is outside London and the South East.

Would you insure local authorities?

JLT: There should be a pool of lenders
Genworth: We disagree , it should be specialist. We spread the risk through €60 billion of reinsurance.

Michael Creed

You are dressing this up saying it's for the benefits of borrowers. We have a history of mis-selling insurance, e.g. PPI.

This will not be a lender paid product. That is not the way it works. Banks are in it to make profits. So are you.

What about recourse being limited to 80%? In other words, I am on the hook for only 80%.

Mortgages should be tiered into secured and unsecured? We wouldn't have proper security. We would not have appetite for that.

Genworth guy: We would waive our subrogation rights.

JLT: if we could not go after the borrower, the risk would be too high and it would be unaffordable

Sean Barrett

Is there a danger that these products become sub-prime lending?

The combination of sub-prime and high LTV is toxic. We insure the top tranche, but we also impose standards on quality of underwriting.

We separate out the risk of sub-prime lending from high ltv lending.

Have the lenders shown any interest in this?
Genworth: We have spoken to 4 this week, and they are keenly interested.

Arch : We have had general meetings only, but no detailed conversations

Insurance companies go bankrupt as well as banks
The insurance companies could become a burden on the taxpayer

The Prudential Regulatory Scheme is very demanding. And Solvency 2 will standardise the very high standards in the UK.

This is not a game for general insurers. It's specialist. We invest in unrelated assets e.g. not property.

JLT: We recommend you spread your risk geographically and through different lines of risk.

Arch: internationally diversified insurers are better placed than domestically focused insurance companies

How much would this insurance cost a mortgage holder?
Genworth : €200k loan, 90% LTV, once off €2,000

Genworth were downgraded to junk in early November. And the same with FBD . The financial sector beats a path to our door when something goes wrong.

JLT have no interest in FBD. We bought the brokers.

Genworth: We are subject to regulation and reserves. The rating is related to the holding company. The subsidiaries are rated A+. We should not rely on rating. We should rely on Central Bank supervision.

Bailing out insurance companies is only second in unpopularity to bailing out banks

You would agree with the minimum of 10% deposit?

We believe that 5% is the minimum.

JLT: There is an economic quotation for the deeper protection.

Tom Barry Cork

Lending without equity is reckless. 5% skin the game is very low.

Who represents the payer? I would like to negotiate myself. Do you reinsure a split mortgage?

You mention a €200k example. Is your maximum payment €20,000.

Does that vary?

Capital relief. Do the banks benefit from having this insurance in place? Should there not be full transparency e.g. separate billing for the product. I would also like to see the benefit as well.

What due diligence do you do that the LTV is correct? That there is not a false value. It was shocking in Ireland. Some people put on a suit and called themselves auctioneers and gave a value.

Regional caps. In Dublin, there is a different dynamic than Cork, the second city.

We really need to get first time buyers moving as it feeds up the line. With combine harvesters, it leads to six new transactions.

Would your attitude to a state bank be any different?

What are your views for the borrower to give them a holistic package e.g. income insurance?

Do you look at other factors?

MII is a contractual relationship between the insurer and the bank. It's not for us to decide or dictate.

Due diligence. We delegate the underwriting authority but we spot check.For high mortgages, there should be a full valuation

In terms of age, the borrower must have sufficient income for the term of the mortgage.

Genworth:
This year there will be 10,0000 FTBs. At the peak, there were37,000.

If we assume that 20,000 is the normal level. (40,000 total FTBs and ors)

14,000 familes would be excluded under a 80% cap. only 6,000 would have been issued.

We would support regional caps

We would not treat state lenders any differently.

Regulatory oversight is critical

thanks Brendan - interesting