Mark Baker (Braddon, Liberal Party) Share this | Hansard source

I also rise to speak on the Housing Loans Insurance Corporation (Transfer of Pre-transfer Contracts) Bill 2006 and the Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Repeal Bill 2006. The passage of the Housing Loans Insurance Corporation bills will enable the government to bring a long-running process to an end and its involvement in the mortgage insurance business to a conclusion. The bills represent a significant step forward in ensuring that the Commonwealth can now divest ownership of the remaining mortgage insurance contracts written by the Housing Loans Insurance Corporation prior to its abolition in 1997.

The Housing Loans Insurance Corporation was established as a statutory body over some 40 years ago to meet a structural deficiency in the availability of mortgage insurance at that time. The corporation insured lenders against the costs of mortgage defaults, thereby providing important assistance to low-income earners with small deposits to obtain housing finance. However, since 1979 successive governments have recognised that there is no justification for the Commonwealth’s continued involvement in the mortgage insurance business because the private sector has the full capacity to undertake this function. In addition, government involvement was distorting prices and inhibiting the growth of the market, as well as imposing a burden on the budget.

As has been stated, a number of attempts to sell the corporation and exit the mortgage insurance business have been made. An exit was first attempted by the then coalition government in 1979, but processes were overtaken by the election in 1983. Following the election, the then Labor government made two further attempts at a sale, neither of which was successful. In 1996 the Australian government restructured the corporation to place it on a more commercial footing, the intention being to make it a more attractive sale proposition in time. The Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Act 1996 gave effect to this restructure. The restructure involved abolishing the corporation and establishing a new company to continue the mortgage insurance business.

Contracts written by the corporation prior to its abolition, known as pre-transfer contracts, remained under the Commonwealth’s ownership. Claims against these contracts are managed on behalf of the Commonwealth under a management agreement. In 1997 the corporation was abolished. The new company and rights to the renewal business were sold to a private purchaser. To this day, the government remains involved in the business of mortgage insurance via its continued ownership of these residual pre-transfer contracts. The Commonwealth’s involvement is no longer financially viable and will only become increasingly burdensome to administer over time. The passage of these bills will allow the government to reduce the amount of moneys currently being spent on management costs.

The current management agreement expires on 31 December 2006. Actuarial analysis undertaken by the Australian Government Actuary shows that there will be few, if any, claims coming through after 2006, when all policies will be at least 10 years of age. In addition, the Australian Government Actuary has advised that present market conditions and the current profile of the portfolio provide the Commonwealth with the best opportunity it has had to complete its exit from the lenders mortgage insurance business. Any delay in amending the current legislation may diminish the government’s negotiating position in the interests of the Australian public. For these reasons, the government considers that it is timely now to consider transferring ownership of these contracts to a private insurer to manage the run-off of the remaining contracts.

This package of bills will enable the government to finally remove itself fully from this business. That makes good sense. The HLIC has achieved its purpose. It has fostered the creation of a market for lenders mortgage insurance in Australia, and conditions suggest that the best opportunity to negotiate a transfer of the remaining pre-transfer contracts is now. The pre-transfer contracts are in run-off and have no remaining premium value, thus creating a legislative environment for the divestment of these contracts, which is fiscally responsible because management of the contracts is exceeding the value of the claims.

The bills and any disposal of the pre-transfer contracts will not affect homebuyers in any way, as the disposal relates to contracts between the Commonwealth and the lenders. Any transfer would be subject to final agreement between any interested parties and the government. The bills do not create a disposal but, very importantly, give the flexibility required to ensure that disposal in the future can occur. There has been bipartisan support for this measure since 1979, and these bills give effect to that longstanding commitment. I commend these bills to the House.

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