Mr. Angel Mas:

I thank the Chairman for the invitation to appear before the committee to discuss the role that mortgage insurance can play in Ireland. Genworth Financial is the only global leader in the provision of MI for residential mortgages with a market presence in 15 countries. Our global reach across a range of jurisdictions and over a number of different housing cycles gives us a particular insight into how MI can operate under different conditions. Genworth Financial has a substantial presence in Ireland.

Last Monday, the Taoiseach opened our new international business centre in Shannon, where over 400 colleagues service Genworth's Irish and international operations.

We have provided MI to lenders for more than 70,000 borrowers in Ireland since early 2000. We have first-hand experience of operating in Ireland. The current focus on MI in Ireland directly arises from the recent consultation process with the Central Bank, which proposes to introduce certain caps for mortgages. There is much in the Central Bank consultation with which we agree. It is important that there is proper supervision on the granting of new mortgages, particularly for high loan to value, LTV, mortgages. While the Central Bank proposals on LTV restrictions have been welcomed, there is concern that the proposed measures will have unintended consequences. In particular, there is fear that new measures will deprive creditworthy purchasers of the capacity to buy their first home. This could arise as a result of the inability of a purchaser to raise a 20% deposit, or as a consequence of the cap imposed on the number of high LTV mortgages that a bank can provide. Once the 15% quota of mortgage allocations is used up, no more high LTV mortgages can be provided, regardless of the creditworthiness of the potential homeowner. Given that high LTV represented approximately 50% of the mortgage market last year, a significant number of consumers will be excluded from the market and forced to wait an additional three to five years before becoming homeowners, if they are ever able to. MI has an important role to play in facilitating prudent and sustainable regulation, while still facilitating home ownership for creditworthy first time buyers.

MI allows lenders to reduce the risk associated with high LTV mortgages by insuring the top tranche of the home loan. For example, a lender who has an MI policy in place will be able to insure the first 15% to 20% of the value of a home being used as security of a loan. The MI policy has various benefits for the system, lender and borrower. It reduces the risk to the lender of providing a high LTV loan given that the top 15% value of the property is covered. Given that the mortgage is covered by a credit risk mitigant, the lender has to put less capital against the high LTV loan. Consequently, it is less expensive to provide the loan to the consumer. The lender benefits because the loan application is scrutinised by a second pair of eyes. The insurance company assesses the risk, and has an alignment of interest in the quality of it.

The lender and the insurer work together to ensure that borrowers are kept in their homes when they get into mortgage arrears. The MI policy is not just about paying out when a house is repossessed and sold. The MI provider works with the lender and the borrower to restructure loans that have gone into default with the objective of ensuring that the homeowner remains in his or her home. This involves the insurer making payments to the lender to facilitate a restructure. For example, in Ireland over the last five years we have worked with lenders to keep 15,000 families in their homes ahead of foreclosure and have paid over €70 million to facilitate this happening, with a further €40 million expected to be paid in the future. MI also has significant benefits for consumers. It enables people who would otherwise have been excluded from home ownership to access a family home with a reduced deposit. It can also assist in reducing the cost of credit given the lower capital cost of a mortgage carrying MI. There is the added comfort of knowing that in the event that the loan gets into difficulty there is a willing insurer prepared to work to keep the borrower and family in the home.

MI is nothing novel or new. It is a well trusted international instrument that has been used successfully in a number of jurisdictions to facilitate prudent lending. MI is used extensively in Canada, Australia, Hong Kong, the Netherlands, Italy, France, Mexico and the United States. MI or mortgage indemnity bonds were also prevalent in Ireland as a matter of practice before the property boom. Regrettably, as some lenders sought to encourage new business during the boom, they dispensed with the requirement for an indemnity bond to be in place and there was no regulatory compulsion for them to insist on one. Caution and prudence suffered in a market that ran ahead of itself. Had MI been prevalent in Ireland, it could have saved approximately €1.7 billion of losses to Irish lending institutions.

I am conscious of the limited time. I encourage the committee to recognise the positive and responsible contribution MI can make in Ireland. There is plenty of international capacity for MI in a new, regulated landscape and the reinsurance market is also very alive and active internationally. MI will facilitate responsible lending with proper mitigation of risk. For the State and Central Bank, it can also work as a macro prudential tool to control systemic risk. This is why we believe the new LTV limits and the 15% quota for high LTV lending proposed by the Central Bank should be flexible to accommodate creditworthy first-time buyers. In such circumstances, it would be harsh to limit access to mortgages as a result of a quota.

It is important to define public policy around first-time buyers. First-time buyers do not usually cause rapid home price appreciation. Recent home price appreciation in Ireland has occurred mostly in above average upper market property and areas. It did not require substantial credit availability, much less high LTV. First-time buyers' products and the benefits associated cold be bound by age or property value to ensure they do not contribute to the most aggressive price increases. Creditworthy first time buyers' access to credit should not be subject to quotas. First time buyers require high LTV, low deposit loans, and, even when prudently originated, those loans represent a significant systemic risk, which can and should be mitigated with a specific and internationally tested and recognised solution.