Home Finance Guarantors Africa - Reinsurance (HFGARe) “Facilitating access to housing finance and home ownership in Africa” 1
Who we are HFGA-Re was established in Mauritius as a Limited by Guarantee Company and is appropriately licensed, regulated and capitalised. HFGA FGA-Re Re build lds s on the experie erience nce of the Home e Loan n Guara rantee ntee Company mpany (HLG LGC), ), a South th Afric ican an non- profit ofit , licence ced, d, ratedi edi nsurer HLGC has for the past 21 years successfully facilitated some ZAR4 billion in housing finance to lower income South Africans through provision of guarantees of last resort to lenders, and housed 300 000 people 2
What we do HFGA HFGA-Re faci Re facili litat tates access to housi es access to housing throug ng through h the the mobi mobili lisat satio ion o n of gu f guarantees a arantees and nd the the provis provisio ion n of of reinsurance reinsurance or or retrocessio retrocession n cover, cover, into countries int o countries in in Af Africa rica Work Work wit with h ex existi isting ng local local re registere gistered d and and li licensed insurance compa censed insurance companies nies Ma Manage nage our risk our risk f for a or as long as we remain s long as we remain on on risk risk 3
What we do (cont) Assist ist loca cal l insure urers, rs, as required red, , to finali lise se and negotiat otiate Colla late teral ral Replacemen ment Indemni nitie ies s (CRI) ) with th local l lenders rs that t will provid ide e home loans ns to lowe wer r and d midd ddle incom ome e bo borrowe owers. rs. Implement a Guarantee Management System (GMS), to manage and administer the CRI , and train insurers and lenders on its use. Provide training at all levels – including product training to lenders and insurers, train the trainer courses, and borrower home finance education. 4
CRI target market Borrowers in middle to lower income affordable housing market, who can demonstrate and prove their affordability to repay home loan instalments, and the costs associated with home ownership, but do not have the deposit required 5
How does CRI work? The Lender is the insured party. All parties however are at risk – the borrower, the lender, the insurer and the reinsurer. The Insurer indemnifies the Lender against a portion of the loss suffered by the Lender at a legal sale of the property. CRI covers loss up to 20% of the initial value of the property and will pay out up to this amount after the sale of the property, if there is a loss. If the property is sold for less than the default debt, the outstanding amount is the Lender’s loss. 6
Buying a house- traditionally Your Home Home loan Deposit 80% 20% 100% Loan Granted Collateral Value of Property 7
Collatera l REPLACEMENT Indemnity Home loan Guarantee Risk to Value 100% 20% 80% The lender purchases CRI which covers it against loss suffered after a legal sale of the mortgaged property, arising from borrower default on home loan installments The Lender’s risk exposure in the CRI programme is equivalent to that of a loan with a deposit, but the borrower does not have the pressure of finding the deposit while paying rent. 8 8
I nsuran surance e cover r is commi mmitted tted for 3 years Option on to renew ew for anoth ther er 3 years Lend nder er pays annu nual al The borrower is able premium mium upfron ont t to access 100% loan. Curre rrently ntly 4% % of the guaran rantee eed d portion on Adeq equate te disclosure osure must be made in the home loan agree eemen ment, , as required red by legislat ation on 9
Insured event The The ins insured red ev event is ent is the lo the loss suf ss suffere fered by t d by the he lend lender er after sa after sale of le of the the pro prope perty, rty, follo following wing bo borrow rower def r defaul ault on on home home loan loan instalm instalments, ents, up to up to the he limi limit o of the f the co cover pu ver purch rchas ased. d. The Lender m The Lender mus ust t se sell ll the the pr prope perty rty in ex in exec ecution o ution of the the debt debt, and a and a cla claim im ca can only be made n only be made to to the he Insu Insurer, i rer, if the pr the prope perty rty is so is sold ld for less for less than han the the defaul default debt debt at a at a public public sale or auc sale or auction. tion. The borrow The borrower de er deriv rives no s no insu insura rance ce ben benefit fro from the pr m the produ oduct ct. The borrower’s benefit is the ability to access the loan, because the Lend Lender ha r has s the the co cover. ver. 10
Salient features - Lenders No anti-sele lect ction, , cove ver r one cove ver r all ll Subm bmit lo loans fo for cove ver ele lectron onica call lly on GMS system em Lender er to adhere to own credit criteria a and default lt management t procedu edures res Clai laims processes esses and procedur dures es must t be adhered to, and are ro robustly stly monitored ed Lenders ers are re require uired d to ensure re that borrowers have ve a full ll underst standing of their home lo loan o obliga ligations, and attend an appropriate borrower educa cation course se 11
Borrower education All ll bor borro rowers must ers must attend b tend borrower edu orrower educa cation tion co course rse In Inform forms borr s borrow ower on r on rights dut rights duties ies and obliga and obligations of al tions of all parties l parties to to the home loan he home loan ag agre reement, ment, and ensur and ensure an e an und understandi erstanding o ng of hom home e owne ownership, ship, in in al all its fac ts facets ets – su such as ch as Ex Expl plai ain te n terms ms l like e inte nterest, rest, i ins nstal tallmen ment, t, mo mortgage, i tgage, ins nsurance, rance, cos osts ts, , cons onsequenc equences of de of defaul fault, t, roles roles and and respon responsibi biliti ties es o of bo f borro rowe wer and le r and lende nder Cov overs bas ers basic as aspec pects ts o of a f a s sal ale ag e agreemen reement t when buy when buying a ng a prope property ty Inc Includes udes a a budget budget ex exerci ercise e to ex to expl plai ain af affordabi fordability ty Home ome o ownershi wnership as p as wea wealth th c creat reation and on and fa fami mily s stabi tability ty, i inc ncludi uding ng the the impo mportance rtance of of hav having a ng a Las Last W t Will and and Testam Testament ent, , whi which deal deals w with as th asset di et distr tribut bution on The The i impo mportanc tance of e of Ma Maintai ntaini ning ng and and imp mprovi roving ng the p the proper roperty ty 12
Reinsurance Arrangements Where local reinsurers such as Zep Re, Tan Re, Africa Re, or others will provide the guarantees in terms of CRI, HFGARe will accept retrocession risk, under terms and conditions. As the primary risk taker, HFGA-Re manages its risk and provides assistance and systems as may be required to implement the programme. 13
HFGA - Re Retrocession agreement • Reinsurer retro cedes % of risk for % of (Retrocessionaire) premium • Retrocessionaire pays retrocession Retro consideration to reinsurer Local Reinsurer Reinsurance Agreement • Insurer cedes % of risk for % of RA premium • Reinsurer pays reinsurance commission to insurer Insurer CRI Collateral Replacement Indemnity • Premium 4% p.a. (calculated on 20%) Housing Lenders • Covers lender against loss suffered • Maximum of 20% of IPV • Keeps lender in equivalent risk exposure as current policy but increasing access to mortgage finance 14
Benefits of the CRI Product To borrowers: Most low to middle income people cannot save the required deposit for a home loan while paying rent. Home ownership provides more stability, security, equity and in many instances, privacy, and is a first step to wealth creation It affords security of tenure, especially to families in the event of the death of a bread winner. 15
Benefits of CRI Product To the country: Stimulates the housing value chain as residential housing developers know that a more predictable housing demand is available, a new market is opened and end user finance is available. This leads to a growth in the housing finance market as lenders are able to increase their own mortgage portfolio. Adds a new viable and sustainable insurance product into the market and enables lenders and insurers to increase their offering to the market 16
Status in African Countries The CRI Product has been approved by Insurance Regulators in: Ghana Rwanda Zambia Uganda Kenya Tanzania The CRI Product has been launched in Ghana, Rwanda, Zambia, Tanzania and Kenya Insurers in these countries are engaging with interested lenders to issue CRI cover 17
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