Brendan Burgess
Founder
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The Central Bank deals with this in their Consultation Paper
Treatment of mortgage insurance
: It can be argued that lenders wishing to make loans at higher LTV ratios than the cap and who have obtained an adequate form of guarantee from a highly credit-worthy guarantor for the excess of the loan over the cap should be allowed to treat this guarantee as allowing an exemption from the LTV cap. This would likely need to be a high-quality guarantee, for example provided by a highly-rated financial intermediary and payable on first demand. While the involvement of an independent mortgage insurance guarantor could help improve loan underwriting quality, and could protect the lender against default, permitting such an exemption would weaken the effectiveness of the macroprudential measure as a tool to dampen the pro-cyclical credit-price dynamics.
A recent Government strategy document indicated that consideration would be given to the concept of a mortgage insurance scheme. No details of such a scheme have yet been announced. Any such scheme would need to be carefully thought through in terms of its potential for resulting in fiscal costs as well as the risk that it could exacerbate housing price dynamics.
The Central Bank intends to consider further whether to introduce at a later stage a limited exemption for suitably insured mortgage loans.
And their consultation question:
Question 5: Should some adequately insured mortgages with higher LTVs be exempted from the measures and if so what should be the criteria for exemption?
Treatment of mortgage insurance
: It can be argued that lenders wishing to make loans at higher LTV ratios than the cap and who have obtained an adequate form of guarantee from a highly credit-worthy guarantor for the excess of the loan over the cap should be allowed to treat this guarantee as allowing an exemption from the LTV cap. This would likely need to be a high-quality guarantee, for example provided by a highly-rated financial intermediary and payable on first demand. While the involvement of an independent mortgage insurance guarantor could help improve loan underwriting quality, and could protect the lender against default, permitting such an exemption would weaken the effectiveness of the macroprudential measure as a tool to dampen the pro-cyclical credit-price dynamics.
A recent Government strategy document indicated that consideration would be given to the concept of a mortgage insurance scheme. No details of such a scheme have yet been announced. Any such scheme would need to be carefully thought through in terms of its potential for resulting in fiscal costs as well as the risk that it could exacerbate housing price dynamics.
The Central Bank intends to consider further whether to introduce at a later stage a limited exemption for suitably insured mortgage loans.
And their consultation question:
Question 5: Should some adequately insured mortgages with higher LTVs be exempted from the measures and if so what should be the criteria for exemption?
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