GE Consumer Finance Gives “Intelligent” Japanese Borrowers Discounts

Colloquial English has an expression “to tax one’s brain” but a Japanese mortgage lender has decided to subsidize them. Or more accurately, GE Consumer Finance has decided to give discounts to mortgage applicants with good English language skills, hold “high-value” jobs like lawyer or doctor, and those with computer skills. The reasoning is simple; these people are less likely to be out of work for extended periods of time, meaning they are less likely to default on their mortgage obligations.

GE Consumer Finance will give a small discount to people who score highly on a test for English language proficiency. In addition, people with computer programming certifications also could get a few basis points knocked off their interest rate. While these skills are in demand in Japan (and elsewhere), there is a large enough supply of people with such abilities that job security is not quite what one might wish.

According to the BBC, members of certain professions will receive “larger” discounts. Among them are “lawyers, accountants, doctors and financial experts.” Then, GECF will post a “top 20” list of jobs that entitle borrowers to even bigger reductions. Also, the skills of parents, children and even brothers and sisters will be considered for further reductions, on the theory that they would help make payments if the primary borrower runs into trouble.

Traditionally, mortgages and their rates were determined by the amount of money earned, without much consideration for the reliability of that income. From a risk-management point of view, that didn’t make much sense. A fellow earning a steady ¥5 million a year is a better risk than one making ¥10 million a year off and on for twenty years.

Of course, in the Japan of old, there was no such thing as unemployment, really. Jobs were for life, and so the security of the income was iron-clad. All that died in the lost decade of the 1990s, and Japan’s lenders must now deal with defaults and risks thereof which were absent in a less flexible economy. What will be interesting is how this innovation spreads through Japan, and abroad.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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