Mortgage insurance planned to reduce credit risks

In an effort to allow those who want to purchase a home easier access to credit, while also reducing the credit risks for financial institutions in the property sector, the Finance Ministry is considering a plan to introduce mortgage insurance.

Although no timeline has been put forward for the plan, the Finance Ministry has stated that it has asked the Asian Development Bank to help study the plan and make recommendations.

Mortgage insurance is a policy taken out that allows lenders to be compensated for the financial damage caused by loan defaults. The Finance Ministry is of the opinion that mortgage insurance would help reduce credit risks and allow homebuyers greater access to housing loans, thereby allowing those in the property business to generate greater sales.

Naturally, financial institutions would have to come to an agreement with insurance companies prepared to offer mortgage insurance policies, although, as with anything to do with insurance, the finer details would be determined by actuarial accountants and the premiums determined on their figures.

The Finance Ministry is also looking into the viability of a reverse mortgage scheme, similar to those operational in countries like the United States and South Korea.

In 2003 the number of Thais aged over 65 constituted just seven percent of the population, but this will jump to around 14 percent by 2025, and some kind of reverse mortgage scheme may be needed to cater to this sector.

A reverse mortgage is a specialty home loan whereby those people above a certain age can borrow money from a financial institution against the equity in their home, with no repayment of the loan until the borrower dies or the home is sold.

If such a scheme were to be introduced it would necessitate changes to the Second Mortgage Act as it currently stands.

The Finance Ministry said it had recently signed a memorandum of cooperation with the Secondary Mortgage Corporation and the Korea Housing Finance Corporation to share information with especial emphasis on reverse mortgage methods.

At present, the United States government only allows people aged 72 and over to take out reverse mortgages while in South Korea the age is just 65.

The government has made it clear it is no hurry to introduce a reverse mortgage scheme, as it needs to assess the viability of such a scheme as it pertains to the elderly in Thailand, especially the possibility of people running out of money before they pass on, and what the implications of this would be for both remaining families and the potential burden on government coffers.