Mortgage Default Insurance in the U.S.

Research Report

Mortgage Default Insurance in the U.S.

Implications for Russia

Abstract

This paper introduces the concept of mortgage default insurance as developed in the United States into the context of Russian mortgage lending. The first part of the paper discusses the broad principles and operations of mortgage default insurance offered by private companies as it works in the United States. The pricing of this product and the preconditions for offering such insurance are highlighted. The second section outlines the operation of the U.S. government-supported default insurance offered by the Federal Housing Administration (FHA). The final part applies the foregoing information to the situation in Russia today and concludes that the conditions necessary for launching mortgage default insurance do not currently exist in the country. Nevertheless, there are a number of essential actions that can and should be taken over the next several months to put Russia on the road to establishing such insurance in a few years. The paper finishes with a possible action plan for the next two years.

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