The Concept of "Mortgage Insurance"
"Forcing people to buy this kind of pointless insurance should have been done away with a long time ago." said Ms. Zhang who had just completed a home loan application. From the day it was implemented, this type of forced purchase has been the object of frustration for many people.
Many mortgage applicants have found that the mortgage insurance agreements state that the first beneficiary of the insurance is not the holder or his family, but the bank holding the loan. If borrowers find that they are unable to pay their mortgage, the bank can request the court to reposses the home, as it already been listed among the mortgaged items, and the insurance company has no risk of paying compensation. But the borrower, unable to pay back his loan, could find himself losing all rights to the purchased property. Unable to receive compensation from the insurance company, he finds himself, in actuality, uninsured.
Experts have pointed out that mortgage insurance has several relatively unique clauses. For example, the only instances in which compensation is given is in the case of damage from explosion, strong wind, strong rain, lightning and land sinkage. Practically speaking, except in some regions, these types of damage are very rare. The result is insurance companies making money without having to pay compensation. This type of "take-all" means no risk the insurance company or the bank.
The Decline of Mortgage Insurance
"Mortgage insurance is becoming a thing of the past." said an insurance insider. All those that used to deal in mortgage insurance are now distancing themselves from it or cutting out entirely to reduce losses. After the PBoC increased the interest rates for mortgages, nearly 30% of urban residents are planning to pay their mortgages off early. According to regulations, if the coverage period of the mortgage insurance has not ended, the insurance company must return the remaining amount of payments. Also, with the increase in early repayment, many Nanjing insurance companies are facing a lack of both funds and personnel.
A financial risk company employee pointed out that if insurance companies plan to do this kind of business, they have to pay banks or other agencies processing fees of up to 30-40%. Now, with home buyers paying off loans in 3-4 years, insurance companies have to return the unused portion of the insurance payments and cannot get back any of the bank fees. "This has been pretty much a loss for us."
Still no Help in Sight
In mid-July of this year, in order to reduce the ill effects of payment refunds, the provincial branch of the Agricultural Bank and Taiping Insurance issued yearly payments for mortgage insurance. Compared with previous one-time payments of several thousand or tens of thousands of Yuan, home buyers can now make yearly payments over the life of their loan, saving quite a lot. Covered areas have also incrased from direct structural damage to personal injury. However, this change has also failed to improve the situation for mortgage insurance.
"From the perspective of the banks, risk is very high." said a mortgage department representative. There is always the risk of the borrower not being able to pay back the loan. With yearly payments on mortgage insurance, if something happens, the banks will be
the ones who suffer. Insiders say that while insurance companies are delaying losses, banks have been taking on more risk. They also say that looking at the situation of mortgage insurance in other provinces, it is very possible that compulsory insurance will end. With banks not requiring the insurance and insurance companies discontinuing the service, mortgage insurance will gradually vanish.
