Societies told to use MIGs

26 March 2010 | By Natalie Thomas

In its guidance to building societies issued today, the Financial Services Authority says if societies do want to offer high LTV products they should use Mortgage Indemnity Guarantees.

The regulator says MIGs are both available and being used by a variety of building societies of all sizes.

It says it understands that several smaller societies have formed consortia to achieve the economies of scale necessary to make MIG practical.

The FSA says: “We do not believe that requiring societies with less sophisticated credit risk management to obtain MIG for high LTV lending distorts the market to the detriment of first-time buyers.

“Any high LTV lending should price-in the associated risk. Whether a lender chooses to pass on that risk to a MIG provider or to retain it should be a secondary decision. Where societies do not have the risk capabilities to self-insure, we guide them to pass on the risk.”

The FSA says it agreed that obtaining MIG cover or alternative collateral are mitigants to the risk of loss-given-default risk associated with high LTV lending.

It recommends that mortgages with MIG or alternative collateral should therefore be considered alongside mortgages of lower LTV lending, when considering loan book structure.

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Readers' comments (11)

George Williamson | 26 Mar 2010 12:39 pm
MIG's do NOT exist! Under FSA rules a MIG must be called a MAP. To call it a MIG is in breach of FSA rules, pity the cannot follow their own rules.
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Paul | 26 Mar 2010 12:39 pm
The answer to this is for the government to underwrite MIG. As with any form of insurance there is only ever one winner, the provider, and given the subrigation rule there is no way the government could lose money, in fact this could prove to be a great way for the government to promote mortgage lending and make a profit which could help the deficit at the same time. sounds like common sense to me, doubt it will do to the jokers running the country!
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Anonymous | 26 Mar 2010 1:23 pm
Breaking News ! A lender can choose to a) Charge a higher rate for higher LTV lending or b) Have a HLC of c) Both to mitigate against losses. Am I living in an alternate universe, have we not been operating thus for some years only to have our Liquidity, Capital and Provisioning figures pulled to pieces by the very body that is now advocating this approach - Come on FSA, get real!
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Anonymous | 26 Mar 2010 2:41 pm
The government will never underwrite HLCs (or MIGs as most people know them) - it's a brilliant idea so it has no chance of being adopted by the government!!
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Ron Radway | 26 Mar 2010 2:51 pm
A Nationalised MIG has been advocated by myself and others since the beginning of Crunch, but being at the bottom of the Food Chain no one listened. Commonsense is not the strong suit of this Government( witness this latest fiasco on Stamp Duty)-someone should explain to them the concept of KISS!
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John Lacy | 26 Mar 2010 3:24 pm
Well Ron that's a good thought only spoilt by the fact that the only KISS that Brown & Darling understand is the one they place on the ass of either the president of the EU or President Obama (or even the General Secretary of UNITE)
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Anonymous | 26 Mar 2010 4:37 pm
The case for MIGs has already been proven in Canada where such cover is mandatory for all loans above 80% LTV. The housing market in Canada has not been subject to the same volatility seen over the border in the USA or in some European markets.
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Anonymous | 26 Mar 2010 4:44 pm
The case for MIGs has already been proven in Canada where such cover is mandatory for all loans above 80% LTV. The housing market in Canada has not been subject to the same volatility seen over the border in the USA or in some European markets.
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Mary Lockyer | 26 Mar 2010 4:50 pm
I recall writing a letter published by this magazine a couple of years ago advocating the reintroduction of the HLC as a cost effective measure, ideally supported by Govt "encouragment" as a sensible means of prudent higher percentage lending. But it's too much like common sense for this lot.
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Anonymous | 27 Mar 2010 6:24 pm
If MIG enables building societies to do more HLTV to help first time buyers get access to homeownership then I think it’s a good thing.
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