A first-loss credit default guarantee is taken to safeguard losses arising due to non-repayment by borrowers toward home loans.
The mortgage guarantee (MG) program also facilitates lender institutions to expand their product offerings by using risk mitigation as an effective tool.
The housing sector is a primary driving force of the economy, and its growth coupled with safety against downturns is very essential. The mortgage guarantee strives to provide a balance between growth and stability.
A successful mortgage guarantee program has the following benefits:
The lender institution gets the benefit of a mortgage guarantee on individual loans at the origination stage. This is a custom-designed program for each partner institution. The flow product offers an opportunity to expand the existing risk box in line with the lender institution’s growth strategy. This can be policy metric relaxation, deepening geographic reach, or any other criteria that fit the lender institution’s identified target segment. A secondary check is conducted on each loan before guarantee issuance. This acts as an added safeguard.
The bulk product is designed to offer guarantee cover on a set of pre-originated loans. This guarantee can be offered for on-book portfolios. (pre-originated loan pools). They are also used as a risk mitigation tool in securitization transactions. Depending on the nature of the arrangement, the originator or the purchaser can offer to opt for a pool cover.
