100 per cent home loans get scarce

Mortgage insurer Genworth Financial has tightened its underwriting standards ahead of tougher conditions in 2009. With effect from December 1, Genworth will no longer cover 100 per cent LVR loans. The highest LVR it will cover now is a 95 per cent loan. Genworth has also changed its criteria for low doc loans. Borrowers will have to provide a business activity statement. Low doc borrowers who are refinancing will have to show bank statements.

The other big mortgage insurer, QBE LMI (formerly PMI), announced changes in September, when it increased premium pricing on high LVR loans by up to 15 per cent and withdrew cover on loans with LVRs above 95 per cent. This means loans where the lender will advance 100 per cent of the valuation are very difficult to get. One lender still promoting these loans is Rams Home Loans, a brand of Westpac, though it's not clear how, or whether, Westpac is laying off any of the additional underwriting risk.

Genworth country executive Peter Hall said the changes were in line with industry trends. Hall said: “When low doc came in in the late 1990s it was a loan for self-employed borrowers who had cash flow in their business but did not have up-to-date financial statements.” In recent years it has been used for purposes it was not designed for, such as providing development finance. Over time the documentation requirements were watered down.

Source: The Sheet