Mortgage Insurer braces for tough times ahead

Photo by Harmen Jelle van Mourik on Unsplash

Genworth Mortgage Insurance is bracing itself for a rise of mortgage delinquencies and claims in the coming months, according to its latest earnings figures.

Genworth, one of Australia's leading providers of lenders mortgage insurance (LMI), has increased its reserves by $47.1 million in the third quarter of 2020 (three months to September 30).

This is an increase of 25% to $82.5 million since the onset of COVID-19 in Australia. 

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

As at September 30, Genworth had over 31,000 active repayment deferrals from lenders, and reported many loans may be expected to experience difficulty following the end of deferral periods. 

Genworth chief executive and managing director Pauline Blight-Johnston said the COVID-19 environment is creating a high degree of uncertainty, but praised the effectiveness of this year's various government and bank support packages.

“We continue to support the repayment deferral programs, government job support packages and legal moratoriums that are assisting Australians at this time of need,” Ms Blight-Johnston said. 

“These programs are beneficial for the economy and Genworth’s business. They are delaying the development and progression of delinquencies and claims, providing Australians with some respite and time to recover.

"They do, however, reduce our visibility of anticipated ­future claims outcomes.”

Ms Blight-Johnston said Genworth has increased its reserving to compensate for this extra risk, and that Genworth still has a strong capital buffer to navigate future mortgage challenges. 

"We understand how important it is for us to play our part in the nation's rebuilding program, by continuing to support our customers, their borrowers and the broader community," she said. 

"Whilst there are initial signs of economic recovery, the lockdown in Victoria and continuing border closures in some states demonstrate that the impact of the pandemic still has a while to play out, so there remains considerable uncertainty about the ultimate impact on Australian borrowers and on Genworth's claims outcomes. 

"We will keep working together with our lender customers through this difficult and uncertain period, and beyond, to support Australian borrowers, helping as many people as possible to realise the dream of home ownership and stay in their home wherever possible."

Still a lot of mortgages in deferral 

Despite the original six-month mortgage deferral period ending, many home loan repayments are still frozen, based on recent big bank data:

• 5% of NAB's total loan book is in deferral at the moment, at 34,000 loans;
• Commonwealth Bank has around 41,000 loans still in deferral come the end of October (19.5%); 
• Around half of ANZ's loans still have some deferred repayments; and
• 31% of Westpac's deferred customers had to request a further four-month extension

Each of these figures from the biggest banks are above the benchmark set by the Reserve Bank, which recently predicted that just 15% of deferred mortgage customers would struggle to resume repayments.

What's worse is those with higher LVRs, mainly those above 90, are disproportionately affected by current mortgage deferrals compared to the overall home loan market, which presents a potential problem for LMI providers like Genworth. 

Over the September quarter, new insurance written was up 22% to $7.8 billion. 

See also: Have a mortgage deferral? Here's how your lender is expected to help when it ends

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Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

• The big four banks are: ANZ, CBA, NAB and Westpac
• The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
• The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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