Credit protection available to mortgage lending institutions through the mortgage guarantee facilitates an enhancement of their product offerings, such as:
Higher Loan Amount Assist in obtaining a higher debt-burden ratio (FOIR, DBR, or IIR), regardless of your income bracket. Considering any additional income the co-borrower may have, we can also help you attain the highest regulatory loan-to-value (LTV) of 90%, 80%, or 75% if there are any policy restrictions.
Loans with longer repayment period: If your home loan term is limited to your retirement age, we can assist you in extending the loan term. Extending the term of a home loan increases loan eligibility while decreasing the monthly instalment payment (EMI). We support loans up to a 30-year loan repayment term.
Increased reach and access to new borrower segments Mortgage guarantees enable lenders to capitalize on opportunities in new geographic locations, including remote & smaller towns. We also support lenders in reaching out to emerging borrower segments such as MSME/SME salaried borrowers getting salaries in cash and at the bank. We also support self-employed borrowers across, who are below or above the income tax range and also consider the income that needs to be assessed.
Foray into non-conventional products: The affordable segment requires a deeper analysis of the cashflows of a borrower, and hence eligibility depends upon assessed income, cash income, agricultural income, etc. These products can be explored with the assurance of guarantee cover.
Mortgage guarantees help lending institutions mitigate credit risks that could arise over long-term horizon due to local, national, or global economic downturns.
Engagement with IMGC has helped lending institutions achieve greater operational efficiency through an additional layer of checks and balances required under the due diligence process.
A mortgage guarantee on a loan enables a lending institution to receive cash flows on delinquent contracts once classified as NPA, i.e., 90+ days overdue. After a claim is filed and approved, IMGC clears all overdue amounts (principal and interest) and makes payments of EMIs of the housing loan until the earlier of:
Mortgage guarantee has enabled lending institutions to manage their cash flows during the period in which a borrower has defaulted or until a settlement/foreclosure is concluded.
Besides helping a lending institution to manage its cash flow during the period in which a borrower is in default, the presence of a Mortgage Guarantee has helped the lending institution and the borrower arrive at a settlement, without any shortfall, (either principal or interest), which is recoverable from IMGC, subject to the maximum amount of coverage.
The settlement, however, requires the consent of IMGC.
A mortgage guarantee is recognized as a valid credit risk mitigant for capital adequacy computation purposes.
From a regulatory perspective, there is an element of risk transfer from the lending institution’s balance sheet to the balance sheet of IMGC, which allows for the release of capital (regulatory capital and economic capital).
Using mortgage guarantees has resulted in an improvement in return on equity for the lending institution. The impact of mortgage guarantees standalone and MG as credit enhancement for securitization transactions is a function of
In addition to the above, the economics of a mortgage guarantee transaction for a mortgage lending institution depends upon whether the lending institution or the borrower is servicing the guarantee fee. In the case of Flow/loan-by-loan transactions, the guarantee fee is paid by the homebuyer, which is an up-front payment and is amortized over the tenure of the mortgage loan to assess the impact on the lending institution’s return on equity. However, in the case of Bulk/portfolio transactions, the guarantee fee could be paid by either the lending institution or by the borrower depending upon the arrangement and product offered.
Lending institutions typically incentivize a borrower to pay the premium by offering:
If the underlying loans in the securitized pool have mortgage guarantee(MG) coverage, it decreases the requirement for credit enhancement from the lender, which in turn helps the securitization market.
The target rating of the transaction, the underlying transaction structure, the characteristics of the lender’s portfolio and the particular pool that must be rated, the extent of MG coverage, and the rating of the MG company all play a role in the reduction of credit enhancement.
To help lenders buy pools with higher yields and/or higher risk from known and unknown lenders or unknown borrower segments, IMGC can help provide credit enhancement via mortgage guarantee.
IMGC may help lenders reduce the credit risk associated with loans with a lower credit profile but a higher yield. Our internal custom scorecard aids in the upfront separation of risk and anticipated future performance. Even in uncertain scenarios, we can help lenders with pool selection, processing, monitoring, cash flow, and end-loss support.