Jane Chen / Shanghai Daily news

The usually profitable mortgage loan insurance business is operating at nearly a loss because of the soaring number of mortgage prepayments, according to today's Guangzhou Daily.
The wave of prepayments started last October, when the People's Bank of China raised the bank rates for the first time since 1995.  The wave has surged this month, after the central bank again raised mortgage rates in a move to clamp down on the country's overheated housing market and control bank loan risks.
More than 30 percent of the borrowers are expected to prepay their housing loans to prevent the rising costs, according to industry insiders.  At the same time, they will refund the related mortgage insurance when the loans are repayed. 
For the early-terminated insurance, insurance companies find it hard to recover the commission fees they paid in a bulk sum to bank partners when the insurance was sold. 
Though the insurance authority ruled in January 2002 that the commission fee is to be 8 percent of the insurance premium, many insurers pay up to 30 percent to boost their business, according to insiders.  It usually takes five to six years to recover the initial fee costs.  With the surge in loan prepayments, commission fees are being halved to 15 percent to offset the risks, insiders noted.
Insurance refunds are expected to see another boom at the end of this year, when borrowers of loans taken out before March 17 will likely rush to prepay their loans.  As of January 1, they will have the new higher rates, analysts pointed out.
Official data from Guangdong Province's insurance regulator also has indicated that the housing loan insurance business has seen a big reduction.  Last year, the province's premium revenue source the family property insurance sector, where housing loan insurance plays a key role, fell to 47 percent from the previous year.