Mortgage stress sees cut to LMI provider profits

by Miklos Bolza13 Feb 2017
As mortgage stress sees more borrowers move away from riskier home loans, Australia’s largest provider of lenders mortgage insurance (LMI) Genworth Mortgage Insurance has seen its annual profits drop by almost 20%.

Chief Executive of Genworth, Georgette Nicholas, said that only 17% or $4.5bn of the group’s new business in the year prior to December 2016 was for borrowers with a 90% loan to value ratio (LVR). This was a 40% decline from the previous year when these loans were worth $7.5bn.

“Affordability remains pressured in a number of markets and low interest rates are increasing refinancing activity, which means increasing competitive pressures among customers to retain their borrowers and margins,” Nicholas said.

“There is a push from lenders to write lower LVR home loans, in the 75–85% end. Some of that is based on regulatory changes that have come through around serviceability and also the limitations around investment properties, with lenders reacting to that.”

The insurer’s profits were also hit by high delinquency rates in the mining regions of states such as Queensland and Western Australia.

“We face some really challenging dynamics including the reduced high loan-to-value market in response to changes in lender risk appetite, but also to regulatory changes.”

The push towards an 80% LVR meant more parents were providing guarantees for their children’s loans, Nicholas said, a trend which could have some negative impacts in the long term.

“I can appreciate the willingness of parents wanting to help their children where affordability is challenged and get into housing, but I think the flip side of that is in a stress event if the child cannot pay the mortgage what happens to the parent’s property?”

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COMMENTS

  • by Marty McBroker 13/02/2017 2:05:30 PM

    Maybe they should lower their premium rates to attract more customers like any other rational business would do.

    Imagine the boardroom meeting. Head of sales to CEO..."We just lost another lender and our review with CBA is coming up in a few months, it's touch and go whether they will renew. Our new premiums written is falling off a cliff this year as it is"....CEO replies " Hmmmm. I know, our strategy will be to increase premiums again. It will totally discourage our end customers and our lending partners will be required to look for alternatives but it will keep the share price up for another few months at least until we get our bonuses. Anybody else gotta better idea?".

    Meanwhile a lowly broker sits at his desk pondering why they get paid the big bucks and why banks still take longer to process loans than they did 17 years ago..