Ministry lines up mortgage insurance to reduce credit risks

Ministry lines up mortgage insurance to reduce credit risks

The Finance Ministry is considering a plan to formulate mortgage insurance in the property sector in a bid to reduce credit risks for financial institutions and allow homebuyers easier access to housing loans. 

"Reduced credit risk for financial institutions would induce greater loan expansion and help support those asking for housing loans to attain greater credit lines," said Banthornchome Kaewsa-ard, a fiscal policy adviser in the ministry's Fiscal Policy Office.

"Property businesses would also generate greater property sales."

The ministry has asked the Asian Development Bank to help study the plan, she said without revealing the timeline.

Mortgage insurance is a policy that compensates lenders for damages caused by loan defaults.

Financial institutions would have to come to an agreement with organisations involved with mortgage insurance for the plan to proceed, said Ms Banthornchome.

She said the ministry was also studying a reverse mortgage scheme because Thailand was becoming an ageing society with many people aged more than 60.

The number of Thais aged more than 65 is expected to increase from 7% in 2003 to 14% in 2025.

A reverse mortgage is a special type of home loan designed for elderly homeowners so that they do not have to pay their monthly mortgage payments.

Homeowners can borrow money from a financial institution against the value of their home with no repayment of the loan until the borrower dies or the home is sold. 

The Secondary Mortgage Act must be amended to allow the new instrument. 

Raising elderly homeowners' income through reverse mortgages and reducing the state's burden for elderly care would be the positive results of such a scheme, said Ms Banthornchome.

A study on the scheme will take some time to complete as citizens' average age needs to be assessed, she said.

A question must also be asked about home ownership in a scenario where an elderly homeowner takes out a bank loan but runs out of cash before his or her death, she added.

The ministry recently signed a memorandum of cooperation with the Secondary Mortgage Corporation and the Korea Housing Finance Corporation (KHFC) to share knowledge, especially regarding reverse mortgage methods, which should be useful in serving Thailand's ageing economy in the future. 

The government is considering extending the retirement age of state officials to 65 from 60 as part of a plan to cope with the ageing population. The plan is scheduled to go before the cabinet for approval early next month. 

KHFC has completed 23,000 reverse mortgage deals that have financially supported its participating retirees with US$3 billion during its first seven years of operation. 

In the US, the federal government allows people over 72 to request a reverse mortgage, while in South Korea the minimum age is 65. 

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