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Friday, 10 May 1985
Page: 1777


Senator RYAN (Minister for Education)(4.12) —I move:

That the Bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows-

This Bill proposes a range of measures to enhance the role of the Housing Loans Insurance Corporation. One of the earliest initiatives taken when this Government came to office was to confirm our commitment to retain HLIC in public ownership. At that time the Minister for Housing and Construction indicated that we would be looking for further ways in which the Corporation could play a greater role in assisting with the Government's housing objectives.

The HLIC is a government-owned commercial enterprise which operates in competition with private mortgage insurance firms. It is the largest mortgage insurer in Australia and insures lenders against loss on loans for owner-occupied housing, rental housing, land development and housing estates, as well as loans for the purchase, construction or refinancing of non-residential buildings. The Corporation has been instrumental in gaining industry acceptance of mortgage insurance as a substitute for large deposits, conservative valuations and short repayment terms. This has directly assisted many Australian families to achieve home ownership.

HLIC has earned an outstanding reputation throughout the housing and finance industry. It has matched these achievements with a first class record of commercial success. In 1983-84 it returned a net profit of $5.4m and paid a dividend of $2.5m to government revenue.

This Bill includes four major initiatives which extend the Corporation's charter and a number of other operational changes. The Government is very grateful for the support given by industry organisations to these initiatives. The first and perhaps the most significant area of new business for HLIC relates to the emerging secondary mortgage market. There is now wide acceptance of the potential for such a market to attract new funds into housing. That potential was recognised by the Martin Committee Review of the Australian Financial System and has motivated recent initiatives by State governments.

This Government places a high priority on ensuring that there is an adequate supply of housing funds to enable Australian families to satisfy their home ownership aspirations. We consider it important that the secondary mortgage market develop in a rational, orderly way and that it have the highest possible standards. We accept the view of industry organisations that HLIC can make an important contribution in this area and we expect to see it complement and support initiatives already taken by State governments and the private enterprise participants in those ventures.

The Bill provides for HLIC to facilitate the development of the secondary mortgage market by insuring pools of mortgages against loss. At present the Corporation is empowered to insure only single mortgages. With this new insurance, investors in secondary mortgage securities that are backed by an insured pool of mortgages can take comfort that their security position is unchallengeable. It is stressed, however, that under the Government's proposal the Corporation will only be insuring the performance of the underlying mortgages. It will not be guaranteeing those who pool mortgages for sale or the market securities themselves. I also stress that HLIC will conduct this new business on a strictly commercial basis.

The corporation's powers to insure traded mortgages in this way are to be found in clauses 4 (b) and 4 (d) of the Bill which define an 'approved dealer' and a 'negotiable mortgage security' and clause 9 (a) which authorises HLIC to insure against losses as defined by regulation. These provisions of the Bill have been broadly drawn so that the Corporation will be in a position to respond flexibly to new security instruments as they emerge in the evolving market. I repeat, however, that the Corporation will be confined to the insurance of losses on the underlying mortgages and not the range of other commercial risks that form part of any market transaction of this kind. On behalf of the Government I acknowledge with thanks the positive industry response to this measure supporting the development of the secondary mortgage market in Australia.

A second major initiative involves extension of HLIC's insurance services to include all loans secured by mortgage, including loans where the purpose of the loan is not directly related to the mortgage security. This initiative is in line with recently announced changes to State legislation involving widening of the lending powers of permanent building societies. While the legislation makes clear that the major focus of the corporation's business will relate to housing, it also provides for HLIC to more fully meet the wider insurance needs of its clients.

This further extension of HLIC's operations is provided for by amendment of the definition of 'insurable loan' in clause 4 (c) of the Bill. The amended definition will remove some existing restrictions which unduly limit HLIC's operations. It will permit HLIC to insure loans where the mortgage is vested in a party other than the borrower or where the mortgage security is held against some other property or where part of the loan not presently provided for, for example, home loans that extend to the consolidation of existing debts on furniture and furnishings.

Removal of the present restrictions also has important policy consequences. Amongst other things it will enable HLIC to provide mortgage insurance services which will facilitate the development of more innovative mortgage instruments by lending institutions. As such this initiative is a positive response to the Martin committee which suggested development of alternative mortgage instruments as a means of assisting low income families to achieve home ownership.

The third initiative provided for in this Bill is to empower HLIC to act as agent for other insurance companies underwriting mortgage repayment insurance for borrowers in the event of death, sickness, unemployment, et cetera. This kind of insurance cover can be important in the first years of mortgage repayment. It is of course a service which will continue to be utilised at the discretion of the borrower. Power for HLIC to operate in this area is provided for under clause 9 (c) of this Bill. The Bill provides for HLIC to operate in the same way as some private mortgage insurers already do by entering into agency agreements with general underwriters operating in the field.

Introduction of a new 'special interest' provision is the fourth major initiative relating to the Corporation's charter. This is covered under clause 9 (c) of this Bill which provides power for the Minister to direct the Corporation to provide insurance of loans falling within a specified class of loan deemed to be of special interest in terms of the Government's housing policies. The Bill provides for prior consultation with HLIC and consideration of its advice. It also requires that all directions issued by the Minister will be tabled in Parliament. The Government envisages that use of the 'special interest' provision will be strictly limited. It will only be used where proposals have particular importance in terms of the Government's housing policies and where mortgage insurance would not otherwise be provided because of the application of strict commercial principles. There is a precedent with a similar national interest provision in the Export Finance Insurance Corporation Act. Examples of proposals that might be covered by a special interest determination include housing in remote areas and multiple occupancy developments including communal housing.

Operational changes covered by this Bill include introduction of a new special annual payment by the Corporation to place it on an equal commercial footing with other mortgage insurance firms. This is covered by clause 16 of the Bill which requires payment by HLIC to government revenue of an amount related to the reinsurance costs of other mortgage insurers. In all other respects HLIC already competes on an equal commercial footing with other insurers.

In line with a similar amendment made under the Commonwealth Banks Amendment Act 1984, this Bill involves amendment of the terms of the Government guarantee of HLIC. The amended wording is provided in clause 15 of the Bill. Clause 6 of the Bill introduces entitlement to age 55 retirement for the two full time statutory office holders of the Corporation. This entitlement is already available to HLIC staff and is standard throughout the Australian Public Service.

Finally, clauses 7 and 8 of the Bill revise provisions relating to membership of the Corporation and disclosure of personal interest by members in line with the recommendations of the Bowen Committee of inquiry concerning Public Duty and Private Interest. The Government's standard procedures for appointment to statutory office and the revised provision relating to disclosure of interests by members provide comprehensive protection against any possible conflict of interest by members of the HLIC Board.

It is particularly pleasing to advise the Senate that the very positive measures covered by this Bill are also expected to result in a net gain to government revenue. It is possible that some minor losses may be incurred by HLIC in connection with business written under the new special interest provision. However, any such loss should be more than offset by other initiatives. The net gain to government revenue will be achieved in part by increased taxation and dividend payments by HLIC arising from growth in business volume. The overall result will be further enhanced as the result of introduction of the new special annual payment covered by clause 16 of the Bill.

This Government has worked with industry and unions to bring about the most impressive housing recovery in Australia's history. The Housing Loans Insurance Corporation and this legislation are integral to continuation of that proud record. The past success of the Corporation in assisting Australian families achieve home ownership deserves our recognition. We are confident that the measures provided in this Bill will ensure that it retains vitality and is responsive to the challenge ahead. I commend the Bill to the Senate.

Debate (on motion by Senator Reid) adjourned.