What is Home Mortgage Insurance?

After 2004, localities have gradually upgraded their home mortgage insurance to comprehensive home mortgage insurance, referred to as "mortgage comprehensive insurance" or "mortgage insurance", which added a repayment guarantee clause: the borrower died or was disabled due to accidental injury When the repayment ability is lost, the remaining principal of the loan will be repaid by the insurance company.

Home mortgage insurance

After 2004, localities have gradually upgraded their home mortgage insurance to comprehensive home mortgage insurance, referred to as "

The contents of home mortgage insurance are:

(1) the object of insurance, that is, the owner of the house that applies for a house mortgage loan;

(2) The insured property is mainly the house purchased by mortgage loan; other related properties attached to the house due to decoration and purchase are not covered by the insurance;

(3) the duration of insurance, and

With regard to home mortgage insurance, if it is not compulsory for the bank to take out insurance, most buyers think that they can save it, and there is no need to buy insurance for the house. Then let's look at the disadvantages of not buying mortgage insurance. If you don't buy mortgage insurance, the biggest risk that buyers (borrowers) face is that once they encounter various accidental injuries that cause them to lose their ability to repay their loans, the real estate they buy will then It may be because the bank can't make the loan on time. Because according to the latest review and implementation of the "Supreme People's Court's Provisions of the People's Court on the Implementation of Mortgage-Building Houses", the people's court can envelop the houses owned by the enforced party according to law, and The application of the right holder shall be auctioned, sold or settled in accordance with the law. In the actual operation of the bank, the bank can refer to the difference between the loan amount and the value of the house, resettle the lender in a relatively remote area, and auction the mortgaged house. Therefore, it is necessary for home buyers to take out mortgage insurance when buying a house with a loan.

And commercial banks also generally stipulate that home buyers must purchase mortgage insurance from insurance companies while lending to banks. Its basic operation mode is: the real estate agent sells the commercial house to the owner who needs the loan, the owner applies for a loan from the bank, the bank requires the owner to mortgage the purchased house, and purchases mortgage insurance from its designated insurance company. Mortgage loan contracts and loan insurance provide loans.

The purpose of banks requiring buyers to take out mortgage insurance is to ensure the most direct and effective recovery of loans, and to ensure the security of houses as collateral. Therefore, in the event of an indemnity, the bank loan should be guaranteed to be returned first. If the borrower has the ability to guarantee the repayment after the accident, the bank may not enjoy the indemnity, but it must guarantee the right of preference.

Insurance companies provide insurance services to banks and policyholders (that is, buyers), and provide services in accordance with the agreement between banks and policyholders. Insurance companies cannot designate beneficiaries. In the insurance contract, the bank as the right holder is the first beneficiary, and the mortgage insurance cannot change the beneficiary until the loan is repaid. In the mortgage insurance policy, the first beneficiary agreed to be a loan bank. The reason is that the mortgage insurance is designed as a guarantee insurance. The main starting point is not to resolve the housing loss and personal injury to the buyers. The risks and losses are meant to compensate for the risks and losses that the bank has incurred due to the inability to repay the home buyer in this case.

After the borrower repays all the loans in advance, in accordance with the relevant provisions of the mortgage insurance clauses, the borrower can bring the original insurance policy and the loan certificate in advance to return to the insurance company to return the prepaid insurance or change the beneficiary.

In our country, mortgage insurance is a property insurance. As commercial banks in China generally stipulate that home buyers must purchase mortgage insurance from insurance companies at the same time as bank loans, coupled with the booming sales of real estate in the 1990s, China s housing loan insurance has shown a rapid development trend. According to the statistics of the People's Bank of China, China s personal residential loan for residential purchases in 1998 was only 42.62 billion yuan, and ~ 2004 reached 16.591 trillion yuan. Although the growth rate has declined in recent years, the average growth rate is still around 30%-35% . As for insurance companies, personal housing loan insurance has a relatively low payout ratio, so it has become a big "cake" for insurance companies to compete for food, leading to fierce competition in the mortgage insurance market.

(1) Risk of Borrower's surrender

Borrowers' early repayment and surrender are the biggest risks facing insurance companies in China's personal housing mortgage insurance. The mortgage insurance business is commissioned by commercial banks on behalf of the insurance companies. The insurance premiums are transferred from the commercial banks to the insurance companies at one time. The insurance companies pay the commercial banks a one-time commission fee based on a certain percentage of the premiums collected. In practice, banks usually designate an insurance company to cover personal housing loan insurance. In order to win the competition, insurance companies often pay banks high fees, which once amounted to as high as 40% in China. You can see it. Once the borrower repays the loan in advance and surrenders the insurance, the insurance company needs to return the full amount of the premium based on the unexpired liability period. At the same time, the high transaction fee delivered to the bank cannot be retrieved, which will cause huge losses.

There are two main factors that cause borrowers to repay in advance:

1. Borrowers' expectations of interest rates. This is the most important factor. At present, the personal housing loans of domestic banks are all non-fixed interest rate loans. In the individual housing loan contract, the interest rate of the loan is clearly regulated. When the national statutory interest rate adjustment is encountered during the borrowing period, it will start on January 1 of the next year and execute at the corresponding interest rate New interest rates. Accordingly, once interest rates rise, the borrower will bear a greater burden of repayment. Therefore, when the borrower expects the interest rate to rise, it is naturally wise to repay the loan in advance. According to a survey, before the central bank announced the interest rate hike on October 29, 2004, the surrender rate of mortgage insurance was between 10% and 20% each year. After the interest rate hike, the surrender rate of mortgage insurance once reached more than 30%.

2. Factors that improve the borrower's ability to repay. The borrower needs to mortgage the house to the bank from the bank loan, which faces the risk that the house will be forcibly recovered by the bank when the loan cannot be repaid in the future. In real life, most borrowers are risk-averse. Therefore, once the borrower's repayment ability is improved, it is likely to repay the loan in advance.

(II) Risk of Borrower's Conflict to Mortgage Insurance

In China, insurance companies that underwrite personal housing mortgage loans mainly bear two responsibilities: one is the liability to pay for the loss of the house due to natural disasters and accidents; the other is the borrower's injury or death caused by the accident and the borrower Liability for loss of repayment ability. In practice, due to the bundled sales of mortgage insurance and housing loans, some of the borrower's options stipulated in the insurance policy cannot be realized. For example, although there are insurance companies that stipulate that premiums can be paid annually or unpaid (see Table 1), in reality, insurance companies generally require borrowers to pay their premiums all at once; in determining the amount of insurance, the borrowers are often required to pay for the purchase of a house. If the bank is required to be a beneficiary, and the borrower pays the premium but fails to pay the insurance, it causes unfairness in the sale of the mortgage insurance. The purchase of insurance for a home mortgage loan violates the principle of voluntary insurance and so on. The mortgage insurance business faced the risk of being rejected by borrowers in the course of its development.

(3) Information asymmetry risk

Information asymmetry is more prominent in personal housing loan insurance. Because mortgage insurance is signed by the bank's agent insurance company and the borrower, the borrower's risk that the bank considers when deciding whether to issue the loan is not exactly the same as the borrower's risk that the insurance company cares about. Moreover, the bank's risk situation on the mortgaged house Is far less concerned than insurance companies. Therefore, it is difficult for an insurance company to fully understand the risk status of the subject-matter insured based on the information provided by the bank on the borrower and the mortgaged house, and the borrower has the best understanding of the risk status of himself and the house. Information asymmetry between policyholders. Information asymmetry will directly affect the establishment of insurance company rates, leading to pricing risks for insurance companies.

(IV) Moral hazards of banks

If the bank lacks a sense of responsibility in the process of underwriting mortgage insurance, it will create a moral hazard for the bank. As the agent's sense of responsibility is directly related to the quality of the mortgage loan business, the occurrence of bank moral hazard will reduce the quality of the mortgage loan business, leading to an increase in the insurance company's risk of compensation. However, China's personal housing mortgage insurance lacks a mechanism that can restrict bank behavior to avoid moral hazard. Therefore, to maintain a healthy development of China's housing mortgage insurance market, risk prevention and control is particularly important.

(I) Standardize the competition mode of the mortgage insurance business and reduce agency fees

In view of the risk of the insurance company facing the loss of handling fees due to the borrower's repayment in advance, the insurance company can only standardize its own business competition, maintain full cooperation with commercial banks, and negotiate to reduce the agency handling fee rate. An agreement was reached with the bank on the issue of refund of the handling fee when the borrower repaid in advance, so as to avoid conflicts between the two parties when the risk broke out and affect long-term cooperation.

But in the long run, relevant management departments need to be involved to maintain fair competition in the mortgage insurance business. The reason why China's personal mortgage insurance business fees remain high is that the bank appoints a borrower to take out insurance with an insurance company. This is the root cause of the vicious competition among insurance companies and the rising commission fees. It is extremely unreasonable for a bank to designate an insurance company. First, banks deprived borrowers of their freedom of choice. From a legal perspective, the insurer has the freedom to choose which insurance company to insure for his own house, and the bank should not have the right to deprive the borrower of this option. Second, the bank requires the borrower to insure housing mortgage insurance. It is to protect its own interests, and at the same time designate an insurance company to collect agency fees. From a legal perspective, it is a "self-agent" in disguise. Therefore, to reduce the handling fee of the mortgage insurance business, the key is to rely on the strength of the management department to abolish this unreasonable clause and attract a fair competition mechanism. In this way, the borrower chooses an insurance company to underwrite it. Even if the insurance company does not pay any agency fees to the bank, it does not need to worry about the source of the business. This is because, in order to ensure the quality of credit, the bank will determine whether the borrower is a mortgage house. Insurance is used as the basis for assessing loan risks. In order to reduce the risk of bank refusal to borrow, borrowers will actively take out mortgage insurance. Therefore, the insurance company can well control the loss caused by the policyholder's withdrawal.

(2) Improve relevant provisions of mortgage insurance

1. The determination of the insurance amount should change the method of determining the insurance amount based on the purchase price of the house, and the borrower should be given the right to choose the insurance amount independently under the conditions that can effectively protect the risk. . The author believes that the approach taken by PICC P & C in determining the amount of insurance is worthy of reference for other domestic companies that carry out housing mortgage insurance. (See Table 1)

2. Determination of insurance rate The rate of China's mortgage insurance is about 5% 0, and the premium payable for a loan of 300,000 yuan and 15 years is more than 10,000 yuan.

Compared to the United States and Canada, where personal housing loan insurance is quite mature and the insurance rate is less than 0.5% 0, the rate of housing mortgage insurance in China is clearly suspected to be too high, and the borrowers are quite resistant to it. Therefore, it is necessary for the insurance company to sample and calculate the census data and use accurate mathematical statistics to determine a lower rate that is realistic.

3. Insurance period The insurance period of the off-plan mortgage loan insurance should be different from the insurance period of the existing house mortgage loan. This is because there is a construction period of one or two years between the conclusion of the loan contract and the actual delivery of the house. Acceptance and delivery, if the borrower is required to assume insurance obligations, obviously lacks fairness.

4. The beneficiary stipulates that in the event of loss, damage or expropriation of the mortgaged property in accordance with China's "Guarantee Law," the mortgagee may have priority to pay compensation for the mortgaged property. According to this law, in the event of an insured event, the bank can also be given priority compensation if it is not the beneficiary of the insurance contract. Moreover, according to China's "Insurance Law", only the life insurance contract involves the issue of beneficiaries, and the property insurance contract has no beneficiary. Most domestic insurance companies classify personal housing mortgage insurance as the scope of family property insurance liability, but they also accept the bank's requirement to make it the first beneficiary, which is not in line with insurance habits.

Therefore, it is absolutely unnecessary to designate a bank as the first beneficiary in mortgage insurance, and this clause should be abolished.

(3) Strengthen risk management of policyholders (borrowers) and mortgaged houses

In the development process of personal housing mortgage insurance, first of all, the insurance company should strengthen the inspection of the borrower's health, personal medical history, and family medical history, and at the same time make a field study on the structure, protective facilities, and surrounding environment of the mortgaged house. Investigate, determine its risk level, and use this to make a decision on whether to underwrite and underwrite the rate, and fully reduce the potential risks caused by the asymmetry of information to the insurance company; secondly, the insurance company should pay attention to the real estate market and interest rate changes, and correctly evaluate the mortgage insurance External environmental risks. The fluctuation of the real estate market directly affects the risk of housing loans, and the changes in interest rates are the incentives for borrowers to surrender and default behaviors. Without research and analysis in this area, insurance companies are often passive when risks come.

(4) Agree on the deductible ratio and adjust the deductible according to the quality of the business

In order to increase the bank's sense of responsibility in the agency mortgage insurance business and to avoid the moral hazard of the bank, the insurance company may agree on a certain deductible ratio in the long-term cooperation agreement with the bank, so that the loan bank also assumes a part of the risk and increase the loan bank s Risk awareness. At the same time, insurance companies can adjust the deductible ratio in a timely manner according to the quality of the home loan insurance business: if the quality of the business is good, then the deductible ratio is lowered, and if the quality of the business is poor, the deductible ratio is increased, thereby fully motivating the loan bank Positive risk investigation. In fact, in countries with developed home loan insurance businesses, many insurance companies assume only 75% of the total amount of creditor's home loans to guarantee insurance, while the other 25% are borne by creditors. This is to prevent creditors from abusing loans and prompting them to be cautious. Therefore, in our country where the part-time agency system is not mature, insurance companies should pay more attention to the prevention and control of agent's moral hazard.