A mortgage insurance product is now being launched for the first time in India, with the US-based Genworth Financial Inc introducing residential mortgage guarantee products.

Typically mortgage insurance products are insurance tools that help an individual to buy a house with a low down payment - less than the usual average 20 per cent that he is expected to provide from his pocket.

The company has received permission from the Foreign Investment Promotion Board (FIPB) to introduce these products with an investment of $50 million. Of this, $7.5 million would be brought upfront and the remaining within the next 24 months.

Earlier, the National Housing Bank tied up with four international corporations to form the India Mortgage Guarantee Company [IMGC] to bring in such a product in the market. However the RBI has still to come up with the regulatory framework for such a mortgage insurance company to operate.

The five partners in IMGC are the United Guaranty Company (UG), the Asian Development Bank (ADB), the Canada Mortgage and Housing Corporation (CMHC), the International Finance Corporation (IFC), and the National Housing Bank (NHB).

The company's primary product would be a mortgage guarantee, providing coverage to India's mortgage lenders in the event of a borrower default. The guarantee product will be a three-way contract between the borrowers, lenders and the mortgage guarantor (IMGC). The guarantee scheme is intended to allow lenders to penetrate broader market segments by offering increased access to more affordable mortgage terms and conditions and expand home ownership in the country. Indirectly, the credit enhancement aspects of the guarantee will allow lenders to access lower cost funds.

According to financial analyst Ravi Kumar, there is a huge need for such products in the Indian scenario, and they will be a huge success once launched. These products are purchased by the lenders and paid for by the borrowers.

Such products help the housing finance institutions to serve segments which are perceived to be high risk, but which in reality may not be so. These include self-employed professionals, traders and other segments who do not have a predictable repayment pattern. It would also help borrowers who have less collateral guarantee and personal guarantee to get loans.

National Housing Bank Executive Director R. V Verma says this product would serve to give the housing finance segment the requisite stability, which would in turn bring stability to the entire financial system.

In developed countries, loans which are guaranteed attract lower risk weight. With the reduced risk weights, the locked up regulatory capital will get released. Thus the lending institution would have that much more capital available to lend.

(http://economictimes.indiatimes.com)