Mortgage Insurance: Enhancing Credit Risk Management in a Global Financial Center

Genworth Mortgage Insurance Corporation

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Date Published
Primary Author Kazutoshi Kuwahara
Other Authors Geoffrey Matsunaga
Country Japan


Japanese banks appear finally to have recovered from the collapse of the bubble economy and, after a long period of retrenchment and restructuring, are seeking to make new loans and add assets to their books. In the absence of significant demand from the corporate borrowers, most banks have turned to residential mortgage lending to generate revenues. The withdrawal of the Government Housing Loan Corporation from direct lending has created opportunities for banks and encouraged this trend. Historically, the credit risk associated with residential mortgage loans has been regarded by Japanese banks as extremely low, and this has led in recent years to looser underwriting standards and more aggressive lending practices. Residential mortgage lending, however, is not without its risks, and some bank analysts at rating agencies have begun to express concern with the aggressive lending practices of Japanese banks. In the United States, similar lending practices contributed, for example, to the real estate collapse in California in the early 1990s. A major factor in limiting losses to mortgage lenders as a result of defaulted loans then was mortgage insurance. In the increasingly competitive mortgage loan market in Japan, mortgage insurance affords Japanese lenders as a credit risk management tool that is widely used in other developed financial markets. As described below, mortgage insurance can contribute in many ways to enhancing the competitiveness of Tokyo as a global financial center.

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