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Return of 100% LTV mortgages signals more false hope for first time buyers |
London, September 15th 2011 – The news that four lenders are currently offering 100% LTV mortgages, with Aldermore most recently beginning to market a ‘100% LTV’ deal does not represent a real glimmer of hope for first time buyers who are unable to save for a large deposit, warns Genworth. The specialist insurer warns that it would be wrong to assume that these mortgages are readily available to first time buyers; in fact the borrowers who may benefit from such deals are typically those with the ability to offer collateral deposits or guarantor support in exchange of the higher loan to value funding.
In addition, and without a clear, sustainable framework, the system remains exposed to the same prudency flaws that contributed to the credit quality issues in recent years.
Angel Mas, President of Mortgage Insurance Europe at Genworth commented: “We disagree with the concept of a true 100% LTV mortgage on a number of grounds and warn lenders and first time buyers about the development of such products.
“There is currently a real threat that the re-emergence of extremely high loan-to-value mortgages across Europe could lead to a new wave of high risk, low quality residential mortgages or even the emergence of US-styled strategic defaulters, due to relaxed lending criteria by banks and default becoming a cheaper and easier option. Without a proper framework, people can bet on the housing market without fear of the potential consequences.
“Whilst we support credit-worthy first time buyers being given access to high loan to value housing finance, we believe there should be a requirement for this group to prove they have the discipline to save for a minimum deposit, and demonstrate they take a long-term view on their personal financial security. A private mortgage insurance eligibility would provide the certainty to the market stakeholders that adequate prudent origination standards are upheld.
“High LTV mortgages are highly reliant on accurate valuations of properties, and this is never an exact science. As a result, lending the full value of the property introduces an operational risk for lenders from the word go. It means that if the valuation of the property is found to be too high, or the market goes down, the buyer is left in negative equity and the lender has an increased risk of default, plus a very serious exposure should that default occur. Adequate checks are required to minimize those exposures.
"In addition, the credit quality of high LTV loans are particularly reactive to economic downturns, and that is why banks should be encouraged to acquire the additional protection that mortgage insurance offers.
“The housing market is cyclical and high LTV is the most cyclical segment. The UK market is currently in a low volume phase, but putting together a robust regulatory framework that incentivizes prudency now could have real results across the cycle. Mortgage insurers like Genworth can enforce a high quality of mortgage originations, ‘police’ the system, and ensure that only quality high LTV loans are originated as has been the case in Canada and a number of other markets.”
About Genworth Financial
Genworth Financial, Inc. (NYSE: GNW) is a leading Fortune 500 insurance holding company with more than $100 billion in assets that is dedicated to helping people secure their financial lives, families and futures. Genworth has leadership positions in offerings that assist consumers in protecting themselves, investing for the future and planning for retirement – including life insurance, long term care insurance, financial protection coverages, and independent advisor-based wealth management – and mortgage insurance that helps consumers achieve homeownership while assisting lenders in managing their risk and capital.
Genworth has approximately 6,500 employees and operates through three segments: Retirement and Protection, U.S. Mortgage Insurance and International. Its products and services are offered through financial intermediaries, advisors, independent distributors and sales specialists. Genworth Financial, which traces its roots back to 1871, became a public company in 2004 and is headquartered in Richmond, Virginia. For more information, visit Genworth.com. From time to time, Genworth releases important information via postings on its corporate website. Accordingly, investors and other interested parties are encouraged to enroll to receive automatic email alerts and Really Simple Syndication (RSS) feeds regarding new postings. Enrollment information is found under the “Investors” section of Genworth.com.
