Korea to Get U.S. Mortgage Insurance

Genworth Financial, a heavyweight U.S. financial services company, is launching into the Korean mortgage insurance market.

As major local insurance firms also get ready to plunge into the market, mortgage insurance products are expected to become available within the year. With this insurance, customers will be able to take out loans for more than the LTV (loan-to-value) ratios if the homes are located outside areas designated as real estate speculation zones.

Mortgage insurance is a financial service when the insurance company will repay the losses that a financial company sees when a mortgage loan is defaulted on. In the U.S., one must buy mortgage insurance in order to take out a loan of over 80 percent of the LTV ratio.

Mortgage Insurance Products Coming This Year-.

The Financial Supervisory Service and the insurance industry confirmed on July 5 that Genworth Financial is at the moment engaging with Korean financial authorities to obtain authorization for mortgage insurance business, and will soon apply for a license. The company is a financial giant holding over 100 trillion won in assets and 15 million clients in 22 countries around the world. It especially boasts world-class competence in the mortgage insurance field.

The financial company opened a liaison office in Korea last year and plans to introduce mortgage insurance services in the local market before yearend.

“Since mortgage insurances that cover loans over the LTV ratio are risky, the company’s risk management techniques and asset adequacy must be carefully studied,” says Do Gyu-sang, head of Insurance Supervision Policy Division at the Financial Supervisory Commission. “As long as it fulfills the necessary conditions, there will be no problems with a foreign company obtaining a license for mortgage insurance business.”

Better Prospects for Low Income Families Purchasing Homes-

The mortgage insurance system was part of the comprehensive plans for real estate policies announced last August 31. The system aims to help home-buyers in non-speculation zones who actually intend to live in the houses not to experience difficulties in financing due to the stepped-up LTV regulations.

With mortgage insurance, the LTV ratio for homes outside speculation zones, with 85 m2 or smaller private area, will go up from the present 60 percent to 80 percent.

For example, a 60 percent LTV is applied to buying a 200 million won home in a non-speculation area, meaning the limit for a home mortgage bank loan would be 120 million won. However, mortgage insurance enables the home-buyer to borrow an extra 40 million won. In the U.S., it is theoretically possible to purchase a real estate property without any money at all, by taking out an 80 percent LTV loan and supplying the rest with mortgage insurance. Young professionals beginning their careers who have high income but not much savings usually make use of these services.

Changes Foreseen in Mortgage Market-

Mortgage insurance is expected to bring about quite a few changes to the local mortgage market. Financial companies will have to change their work patterns as they will no longer be providing loans simply based on LTV ratios but also take into account the borrower’s ability to repay the debt as well as his or her credit-worthiness.

Genworth Financial declared that the new service will increase the chances for low-income families to become home-owners while spreading out the risk for financial companies and the government, and making the financial market more stable in the process.

However, some still harbor doubts on whether the mortgage insurance market will expand rapidly. They express reservations on whether insurance companies will actively embrace the mortgage insurance business, in face of the constraint of “homes outside speculation zones, with 85 m2 or smaller private area only” as well as the administration’s strong measures to hold down real estate prices.

There is also the interpretation that Genworth Financial’s move into the Korean mortgage insurance market is to maximize first comer’s benefits rather than to reap big profits in the near term.

Suk-Min Hong Jin-Young Hwang smhong@donga.com buddy@donga.com