Housing Loans Insurance Corporation.


The Housing Loans Insurance Corporation (HLIC) was established by the government of Sir Robert Menzies in 1965 to provide a government-backed housing loan insurance scheme. The main purpose of this scheme was to assist prospective home purchasers to obtain a loan at a reasonable rate of interest by providing mortgage insurance. Mortgage insurance policies cover the losses suffered by lenders when a borrower defaults on a loan secured by mortgage. Although the HLIC principally insured housing loans, it also insured lenders for loans relating to non-residential buildings. In the mid-1990s, HLIC was the largest mortgage insurer in Australia, having insured more than 1,300,000 loans.(1)

In 1996 Parliament passed the Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Act 1996 which restructured HLIC into a new government-owned company. Subsequently, HLIC Ltd was sold to the private sector in 1997.(2) Insurance contracts written by the HLIC prior to its restructure, known as pre-transfer contracts , remain under the Commonwealth s ownership. The size of the principal amount covered by the Commonwealth s guarantee and the balances outstanding was estimated in 2005 to be $5.397 million. This figure is a small increase on the balance outstanding in 2004 which was $5.087 million, but much less than the $19.036 million balance outstanding in 2003.(3) There are no figures available for earlier years.(4)

According to the second reading speech, claims against these contracts are managed on behalf of the Commonwealth under a management agreement. No figures are available for the extent of the Government outlays associated with the management of the pre-transfer insurance policies. In 1996, when it took over the pre-transfer contracts, the Government estimated its expected budget allocations to cover anticipated home loan defaults in the three years following the restructure of HLIC would be: (5)

1996 97

1997 98

1998 99




Mortgage default

Recent press reports have indicated a rise in the number of cases lodged in state and territory Supreme Courts to take legal action against borrowers who default on mortgages that are secured by property.(6) For example, the Age reported that in Victoria there had been a 58 per cent increase in mortgage repossessions between 2004 05 and 2005 06.(7) In New South Wales, the Australian Financial Review reported that there was a 60 per cent jump, up from 3061 in 2005 to 4873 in 2006,(8) while in the ACT, the Canberra Times quoted a report by the Consumer Law Centre saying that repossessions in the Territory increased by 39 per cent between 2004 and 2005.(9) However, in Western Australia, the trend is in the opposite direction. According to the West Australian, after a rise in the number of home repossessions in 2004 05 to 577, the number of applications dropped to 531 in the past financial year .(10) It is not known what risk the rise in mortgage defaults poses to the Commonwealth through its ownership of the pre-transfer contracts of the HLIC.