Taking a fresh look at MIGs.Derek Abbott Derek Abbott (3 May 1960, in South Kensington, London, UK) is a physicist and electronic engineer. He is a Professor of Electrical and Electronic Engineering at the University of Adelaide, Australia. of Hollier Browne QI GATHER that the Government is thinking of encouraging the reintroduction of some-thing called Mortgage Indemnity Guarantees. What are they, exactly? AA MORTGAGE indemnity guarantee Mortgage Indemnity Guarantee (MIG)
A Mortgage Indemnity Guarantee (MIG) is an insurance policy designed to protect the lender (mortgagee) against loss in the event of defaulting and ceasing to repay the mortgage. (MIG) is basically a type of insurance.
Back in the olden old·en
Of, relating to, or belonging to time long past; old or ancient: olden days.
[Middle English : old, old; see old + -en, adj. days, when a first time buyer - or indeed anyone without much of a deposit - wanted to take out a high loanto-value mortgage (ie, anything over about 85 per cent), the lender usually insisted that they take out MIG cover. This was typically based on a single premium paid upfront, the amount being added to the mortgage loan itself.
Not to be confused with mortgage protection insurance - which pays your mortgage if you are temporarily unable to do so through redundancy or longterm illness - MIGs protected the lender.
So if a borrower defaulted and the property had to be "forcesold" for less than the outstanding mortgage debt, the lender could claim on this insurance for the shortfall.
For a long time, MIGs were standard practice, although they certainly attracted their fair share of controversy since lenders appeared to gain all the benefit while the costs were borne directly by the consumer.
However, they fell out of favour during the last property recession in the late 80s and early 90s.
With repossession The taking back of an item that has been sold on credit and delivered to the purchaser because the payments have not been made on it.
For example, if an individual fails to render prompt payments on a new car, the car might be subject to repossession by the finance company, rates soaring, and claims by lenders going through the roof, insurers very quickly fell out of love with MIGs, and they virtually disappeared.
Now, however, with lenders hugely risk-averse, the Government is looking again at this issue.
Why? Well, because for all the problems with old-style MIGs, they did at least enable borrowers (and particularly first time buyers) to obtain the high loan to value mortgages they needed.
So, maybe we will soon see the introduction of a new, re-engineered MIG scheme, allowing lenders to insure the risky element of a high loan to value mortgage and actually lend to all those would-be first time buyers who do not have access to the bank of mum and dad.
Obviously, with the state of the wider economy at the moment, premiums would undoubtedly need to be fairly hefty. But then, perhaps the Government could be persuaded to become the insurer of last resort insurer of last resort An insurance plan that accepts 'uninsurable' persons who have expensive and/or chronic diseases, and cannot obtain coverage at market rates. See Blues. .