Chris Pearce (Aston, Liberal Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The introduction of this bill into the House today represents a significant step forward in ensuring that the Commonwealth can divest ownership of the remaining mortgage insurance contracts written by the Housing Loans Insurance Corporation prior to its abolition in 1997.

Together with the Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Repeal Bill 2006, this package of bills will enable the government to bring a long-running process to end its involvement in the mortgage insurance business to a conclusion. At the same time, it also simplifies the operation of the law. The Housing Loans Insurance Corporation was established as a statutory body over 40 years ago to meet a structural deficiency in the availability of mortgage insurance at the time. The corporation insured lenders against the costs of mortgage defaults, thereby assisting low-income earners with small deposits to obtain housing finance.

Since 1979, successive governments have recognised that there is no justification for the Commonwealth’s continued involvement in the mortgage insurance business, as the private sector had a demonstrated capacity. In fact, its ongoing involvement was distorting prices and inhibiting the growth of the market, as well as imposing a burden on the budget. Successive governments have made a number of attempts to sell the corporation and exit the mortgage insurance business. 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, however, the Commonwealth still remains involved in the business of mortgage insurance via its continued ownership of these residual pre-transfer contracts. Importantly, the bill does not commit the government to a transfer, but instead provides the necessary framework to enable any transfer of the contracts to occur, if desired. And continuing ownership of these pre-transfer contracts is not desired. The Commonwealth’s involvement is no longer financially viable and will only become increasingly burdensome to administer over time. The current management agreement expires on 31 December 2006.

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 bill enables such a transfer to occur. I commend the bill to the House.

Debate (on motion by Mr Crean) adjourned.