Angel Mas

12 November 2010 8:00 am

Angel Mas, president of Mortgage Insurance Europe at Genworth Financial, has the lofty ambition of reforming the UK mortgage market.

He believes UK regulators have a once in a generation opportunity to reduce the cyclicity of mortgage lending, stabilise the housing market and prevent a squeeze in mortgage availability that will exclude all but top-tier borrowers.

The need for reform is acknowledged by the regulator and the industry but Mas is unimpressed with some of the proposals put forward, in particular, moves to cap high loan-to-value mortgages. He says: “This excludes some good borrowers. And what for? To force people to save for 12 to 15 years, just for the down payment to get a lower LTV mortgage. High-LTV mortgages are essential for first-time buyers who, in turn, are the most important segment from a social and policy perspective.”

Mas has worked with regulators to look at the model used in Canada, which has proved resilient during the downturn.

“The government dictates what a prudent loan should look like and demands a number of guarantees, which are applied to high LTV loans. All originators have to meet quality criteria. In return, because the regulators know this criteria is in place, they allow banks to hold a little less capital. In good years, they can’t go crazy as they are restricted. In bad years, they can keep things going.”

As a result, the banks have remained well capitalised and open for business.

The capital requirement for providing high LTV mortgages is the biggest problem for the UK banks since the credit crunch. Although loans have become more affordable, with interest rates lower than they have been in the past, banks are reluctant to open up lending.

Mas says the reaction of the regulators to the crisis has been to restrict lending criteria but this approach is “all stick and no carrot” and will make the marketplace extremely narrow.

Mas thinks the message that this is not the right approach is getting through. He has been talking to the regulators for a long time and feels they now know enough about the Canadian model and other successes in Korea and Hong Kong, but adds: “It will take political will and a courageous decision to create this framework. There are lots of stakeholders and it is difficult to please everyone.”

Mas says the consequences will be dire if the mortgage market grinds to a halt.

“We all agree it is important that good potential buyers of residential property have the access to do so. It is good for the economy - for construction, for healthy credit, for the consumer. The alternative is a whole generation of people excluded from housing, with all the potential repercussions for social cohesion.”

Reducing the cyclicity of the mortgage business is a key ambition for Mas. He says the big mistake many institutions made during the boom years in high-LTV mortgages was to lend mostly - if not solely - in expectation of rising house prices. It was asset-based lending and they were not paying enough attention to the credit-worthiness of the borrowers.

“In a good year, banks are tempted to compete on risk, which is the worst possible thing for them to compete on. In the bad years, there is no supply, however someone’s credit rating looks.”

When Genworth assesses risk, the emphasis is on the borrower, looking at affordability to income, family status and whether properties are owner-occupied. The group is trying to judge both ability and willingness to pay. Historically, it was assumed people would do their utmost to pay their mortgage if they had the means. This is no longer always the case.

Genworth offers mortgage insurance mortgage to lenders and borrowers in the UK but globally it works in a number of specialist insurance sectors such s long-term care in the US.

The group sprung out of General Electric becoming fully independent in 2006 and Mas describes it as a “new company with a long history”. He points to the group’s 30 years’ experience and its established team of 100 people across Europe assessing loans. This has ensured it has stayed open for business during some extremely rough periods.

Mas’s own history started with Banco Santander in Asia but he moved to GE soon after and from there has worked in many different businesses.

“As part of GE’s internal consulting group, I worked across Asia, Eastern Europe and Japan. I then joined GE Financial Insurance as head of Southern Europe and I have been with Genworth ever since.”

He moved to head the mortgage business in Europe in July 2007, which he admits suggests some flaws in his personal risk management.

“It has been a very tough but interesting period. It has tested business relation-ships to the max and we have emerged with our long-term relationship with clients and regulators in tact.”

Mas is clear about the group’s social purpose. “We help banks and borrowers. We ensure that high-LTV mortgages are available to people with good credit. We help the banks accept and protect against risk, which allows them to lend to first-time buyers. We also work closely with the Government and regulators to try and ensure best practice is applied globally.”

He is also clear about the way mortgages need to be structured. “Originations need to be done with adequate quality and banks must be incentivised in terms of capital. There has to be strong enforcement of prudency and an examination of the different models that have worked in the past.

“It is not about investing in anything new. There are well-proven models that markets recognise and these models have survived the worst. Tweaks and small fixes will not work.”

 

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