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Uk To Consider Canadian Mortgage Insurance Scheme

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http://www.guardian.co.uk/business/2009/ju...ime-housebuyers

The Guardian reports that the UK Gov't is considering emulating the Canadian scheme which forces borrowers with high LTVs to take out insurance against the possibility of default. I don't have all the details of how the Canadian scheme works but I understand that borrowers with an LTV above 80% have to pay a premium to an independent insurer who effectively wraps the mortgage. http://www.lendingmax.ca/artman/publish/Un...n_insurance.php seems to have some detail on it.

I'd be interested in people's thoughts, this seems quite sensible to me, although I'm sure the cynics will see straight through it as another throw of the dice to get the FTBers playing.

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I mean, paying an insurance premium for a higher LTV, seems no different to paying a higher fee or higher rate in exchange for a higher LTV, which is surely what already happens. Its the same thing, surely.

Not an idea to prop up the housing market, just busybody government waffle.

Let the market do its thing, and we will get where we want to be.

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I am quite a conservative type. I have to say that I quite like the Canadian mortgage market and see it as one of the few examples of a hybrid public / private system that actually works.

- There are no mortgages with an LTV higher then 95%

- LTVs between 95% and 80% are done via a government sponsored insurance scheme (the CMHC)

- LTVs of 80% and lower are done though the banking market

- Mortagage costs (principal and interest) cannot be more than 30% of income

- Total debt service costs cannot be greater than 42% of income

- Maximum loan amortisation is 30 years (the government put a stop to the trend of 35 and 40 years ams)

The advantages of the system are as follows :

- Super high ratios have been avoided

- The insuance scheme means that high ratio mortgages become homogenous. This protects investors and makes it very easy to securitise high ratio mortgages as they are effectively government guaranteed

- The limits on both mortgage and total debt service ratios to income prevent "insane" borrowing

- The proprtion of fixed rate mortgages for longer terms is much higher there than here. This means that the debt service ratios are quite stable as costs remain fixed when short term interest rates fluctuate.

- The system is based on the ability to pay rather than house prices not falling

- Mortages all include principal repayment. This is less risky to consumers and avoids all of the market risks in things like interest only mortgages and endowment mortages

- The small number of mortgage products mean that their market is much more competitive and transparent than ours

Personally, I think that this is a pretty good model.

http://www.cmhc.ca/en

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I am quite a conservative type. I have to say that I quite like the Canadian mortgage market and see it as one of the few examples of a hybrid public / private system that actually works.

- There are no mortgages with an LTV higher then 95%

- LTVs between 95% and 80% are done via a government sponsored insurance scheme (the CMHC)

- LTVs of 80% and lower are done though the banking market

- Mortagage costs (principal and interest) cannot be more than 30% of income

- Total debt service costs cannot be greater than 42% of income

- Maximum loan amortisation is 30 years (the government put a stop to the trend of 35 and 40 years ams)

The advantages of the system are as follows :

- Super high ratios have been avoided

- The insuance scheme means that high ratio mortgages become homogenous. This protects investors and makes it very easy to securitise high ratio mortgages as they are effectively government guaranteed

- The limits on both mortgage and total debt service ratios to income prevent "insane" borrowing

- The proprtion of fixed rate mortgages for longer terms is much higher there than here. This means that the debt service ratios are quite stable as costs remain fixed when short term interest rates fluctuate.

- The system is based on the ability to pay rather than house prices not falling

- Mortages all include principal repayment. This is less risky to consumers and avoids all of the market risks in things like interest only mortgages and endowment mortages

- The small number of mortgage products mean that their market is much more competitive and transparent than ours

Personally, I think that this is a pretty good model.

http://www.cmhc.ca/en

I agree. Back in the 80's if you lost your job for the first three months the state would pay HALF your mortgage interest, then ALL of it. In the 90's (I think) the rules were changed so that the state paid NOTHING for the first 6 months. The mortgagee was 'required' to have an insurance policy to cover potential loss of income. In the boom times this 'requirement' was quiety dropped.

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making some sort of repayment vehicle compulsory, limiting income multiples, that would definitely be great.

making a government insurance scheme compulsory I don't think would be. if a bank is lending 1,000s of mortgages and underwriting properly, they should be able to spread their own risk.

we have a housing bubble not because of loan defaults not being insured, but because of MEWing, speculation, ridiculous income multiples, interest only, BTL mortgages etc etc.

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What happend to Mortgage Indemnity Guarantees?

I remember having to pay this in 1993. If my memory serves me well it was an insurance for the bank or building society in case I defaulted on the loan.

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