GUIDE TO INSURANCE: Keeping the wheels turning
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08/04/2010 10:00:00 AM
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The Canadian mortgage loan insurance market, like the rest of the industry, has been through a lot in the past 18 months. As the country's safety net for mortgage defaults - and, in turn, a contributor to economic stability - mortgage insurers now find themselves in a position where they must work harder than ever to balance being cautious with being supportive of mortgage market growth.
After the elimination of 40-year, zero-down mortgages at the tip of the financial crisis, some borrower criteria faced more restrictions, but the tide shifted as the housing market soon picked up beyond expectations in mid-2009. Genworth Financial Canada president Peter Vukanovich says that while borrower criteria tightened throughout the financial crisis, the improving housing market has helped change industry outlook.
"Back in 2009, we went through a pretty bleak period and we had really slowed down because lenders were having trouble with liquidity and delinquencies," he says. "It was a tough period, but with the housing market stabilizing, it has normalized quite significantly here so it's been more business as usual."
Along with economic changes - including the new mortgage insurance rules announced by the federal government in February - there has also been a small but noticeable shift in the way mortgage insurers are interacting with lenders, consumers and, perhaps most notably, in marketing efforts, mortgage brokers.
"I had CMHC in here last week and for the first time I can remember their marketing materials included the word 'broker' and the phrase 'contact your broker,'" says Debbie Thomas, a broker and partner at The Mortgage Group in Vancouver, where she oversees compliance and training. "I think they're feeling really strongly that we as brokers have a positive influence in the industry and it's taken a long time to change that attitude."
Tightening up
The overarching trend across the mortgage insurance market during the financial crisis was
no surprise - tighter borrower criteria and an atmosphere of caution. The prudence has been generally well-received. Along with the Canadian banking rules that have been oft-praised for saving Canada from deeper recession woes, the fact that most mortgages face strict underwriting standards in the mortgage insurance process and are backed by the federal government has been another boon to the industry.
While some borrower restrictions imposed last year have loosened since the gradual economic recovery has been underway, there is still a greater emphasis on borrower quality. For example, proof of income might now be examined in greater detail beyond a letter of employment and also require a pay stub and a notice of assessment.
"We've certainly seen a tightening with more restrictions being imposed on the lenders with an emphasis on portfolio quality, which is a sign of the economy and where we've come from in the past 12 to 18 months," says Dave Terletski, director of risk management at Bridgewater Bank, one of only a few lenders that work with all three Canadian mortgage insurers. "We've seen all types of income of a borrower being questioned further than before and requests for more supporting documentation."
Terletski also says that because refinancing has become so popular over the past few years, especially due to record-low interest rates and more demand from consumers to consolidate debt by leveraging their mortgage, insurers are looking at refinance guidelines more cautiously. This is especially relevant with a recent Bank of Canada warning that consumer household debt is at a record high.
One of the main borrower categories Thomas has noticed as a broker are tightened insurer guidelines for self-employed individuals, who often write off a large portion of their income for tax purposes.
"The whole issue of reasonability has now been forced back and self-employed deals that used to be approved are not even close to being approved today," says Thomas. "It hasn't been an announcement or anything that has come out from the lenders or insurers, but it's something we've definitely noticed."
Among some rules getting tighter, both Genworth and CMHC have become more accommodating in helping out struggling borrowers. Both companies introduced homeowner assistance programs, which have received a positive response from lenders. These programs help borrowers understand some of their options when they lose a job or encounter other financial difficulties.
Genworth says its program has helped more than 4,600 Canadian families. As for CMHC, approximately 36,000 people have viewed its report since it launched its consumer outreach campaign in March 2009, namely its Homeowner Default Management Guide.
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