ScoMo’s sub-prime FHB guarantee rises

Via Ian Rogers at Banking Day:

The First Home Loan Deposit Scheme will kick in from 1 January 2020, allowing up to 10,000 borrowers a year to benefit from guarantees for lenders from the Australian government.

The National Housing Finance and Investment Corp will administer the scheme, with a bill to enable this policy introduced to Parliament yesterday.

NHFIC is undertaking consultations with lenders over their potential participation in the scheme. It said “this market sounding is the pre-cursor to a procurement process which will be used to establish a panel of lenders.”

A briefly controversial policy announced in the final week of this year’s election, the scheme aims to facilitate earlier access to home ownership for first home buyers without needing to rely on lenders’ mortgage insurance from the private market.

Because liabilities under the First Home Loan Deposit Scheme are met by a standing appropriation, “the NHFIC is not required to maintain capital and reserves to meet liabilities” over guarantees to lenders, the Explanatory Memorandum on the bill states.

The scheme will involve contractual arrangements with a panel of lenders, “and smaller banks and non-bank lenders will be prioritised to encourage competition.

“Additionally, the property price of eligible homes will be determined on a regional basis, to ensure that benefits of scheme participation are spread across the country.”

The memorandum conceded that “given the limited supply of guarantees, the potential financial benefits for successful applicants, and the relatively high income eligibility thresholds, it is likely that there will be a large pool of eligible borrowers.

“Therefore, a key implementation detail will be how the 10,000 annual guarantees should be allocated.”

An independent review of the Scheme will be undertaken within three years of the Scheme’s commencement to ensure that objectives are being met.

Terrible policy.

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