Broker calls for CMHC pre-approvals

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With all the talk about the CMHC potentially instituting risk-based insurance premiums, it’s the mortgage default insurance policy one broker would like to see changed.

“CMHC, Genworth, Canada Guaranty will not even look at a client until they have bought a house,” James Robinson of The Mortgage Centre told “So somebody puts an offer in, unconditional, because they are in a bidding war and even though there might be a piece of paper that says you’re pre-approved, it isn’t worth the paper it is written on because it has only been looked at by the broker and maybe the lender (but) not the insurer.”

It’s an issue Robinson has faced a number of times; over-excited clients get drawn to a property and forced to enter a bidding war because of the level of competition in the market. It’s also a trend that has increased recently, with a BMO report from early March finding that 36 per cent of Canadians are willing to enter a bidding war.

To combat this Robinson thinks the three mortgage default insurers should provide pre-approvals prior to clients putting in an offer for a property.

“Our business is in Toronto and the way the real estate market has decided to price properties now (is the most frustrating thing I’ve face lately) and it seems that there is a real disconnect because people are being forced into bidding wars where they are not allowed to have any conditions whatsoever so they’re taking a risk,” Robinson said. “One of two things has to happen: Either the insurers have to start doing pre-approvals or this practice of unconditional, crazy bidding has to stop because … we’re always coaching people telling them they can bid whatever they want but I can’t give (them) a firm approval until you have bought the house.”

For the time being, however, all brokers can do is coach their clients to include a contingency plan when planning on purchasing a home with a high-ratio mortgage.

“We always force our clients to have a plan-b; talk to your parents and see if they will give you more money if something goes wrong or co-sign,” Robinson said. “Otherwise they have bought a house and what then?”
  • Kent Farnsworth on 2014-04-07 10:50:51 AM

    As much as I would like to see this as well, I can't see it ever happening. Insurance companies like to minimize expenses and this would create a significant strain on manpower leading to extra costs from new hires to handle the additional workload. The banks currently act somewhat as a buffer for the insurers. It would be great though. We can dream I suppose :)

  • John Van Driel on 2014-04-07 11:02:11 AM

    Technically speaking, clients without 20% down, cannot get into a bidding war Unless they have a plan B.

  • Brad Currie on 2014-04-07 11:31:02 AM

    Totally agree...while it may create some additional cost on the insurer's, what about the cost of the current situation, on clients, realtors, and brokers in terms of their time. Even with a well qualified applicant, we can still run into issues on the property, especially condos.... in particular Genworth is particularly hard on condos. Even just having the property pre-approved would be a huge benefit in a multiple offer scenario. Would this be a service clients may pay for?....not sure, just a question...

  • Barb on 2014-04-07 11:49:11 AM

    The insurer can not fully weigh in on risk until they're informed of specific property.

  • Guillermo on 2014-04-07 11:50:19 AM

    What good would insurers pre-approving borrowers do? They can't give an iron-clad guarantee of an approval because there is no property to underwrite yet. Actually, I see this as more a problem that buyers and some realtors have created. The buyers are creating their own problem by throwing caution to the wind. I think if anything, the rules governing real estate transactions should be changed such that sellers aren't allowed to ask for unconditional offers. Also, why not make it so that all offers have to give the buyer 5 or even 10 banking days to satisfy conditions. I mean really what's the rush? You'd think a shoe salesman was ridiculous if he said to you, "I need you to commit to me right now -- buy these shoes right now. And no -- you can't even try them on and don't ask about our return policy because we don't have one. Do not think about coming back to me even a day later to buy these shoes." You'd think, "This guy's nuts and completely unreasonable". Yet somehow, a lot of people have accepted this as a normal and reasonable way to do business in real estate. I don't think the answer is to ask CMHC or the other insurers to take on more risk and work, further driving up premiums, only to support risky behaviour that buyers are displaying by getting into bidding wars and making unconditional offers. I think the answer is for buyers (with the counsel of good realtors) to stop playing with fire. In the absence of buyers and realtors figuring it out for themselves, if regulators change the rules such that buyers have to have 5-10 days to satisfy their conditions, I believe it would reduce a lot of the panic and risk associated with real estate transactions by leveling the playing field for buyers and sellers and it would make providing the financing for buyers a much saner process in which fewer mistakes would happen. I've spoken with a lot of realtors about this issue and I haven't had one of them disagree with this idea. I think most realtors are interested in their clients well being. Unfortunately, there are a few that think they are serving their listing clients well by forcing bidding wars and then demanding or at least setting up the bidding process such that eventually it leads to "no conditions" offers. That sounds like a great strategy when you're thinking about maximizing the offers sellers get on their homes but what about when a buyer makes an unconditional offer and then later a defect in the property shows up when an appraisal is done? If the buyer can't get financing, not only is the buyer in trouble but the seller is too. What if the seller needs the proceeds for a down payment on his/her next home and now the seller can't close his/her purchase? That strategy doesn't look so great then, does it? The problem isn't insurers. The problem, the way I see it, is a lack of legislation to protect buyers from getting into these situations (i.e. real estate regulators). Like I said most realtors I've spoken with agree that this would make the process a lot fairer, simpler and lessen the chance of their clients being hurt.

    because they allowed emotion to take over and then later figured out there was

  • Brad Currie on 2014-04-07 11:55:23 AM

    Agree.. insurers cannot assess risk until they know of a specific property.. however, in event of multiple offers, to be able to pre-approve the property would be very helpful. I could see clients paying for this service... say $100 right on their credit card (or their realtors)

  • John Van Driel on 2014-04-07 12:05:56 PM

    I agree that in a wonderful world, realtors would agree, or governments would mandate this. The difference between a house and a pair of shoes is abut $30,000 in commission. That occasionally drives realtors to do things they may not always be proud of.

  • Kent Farnsworth on 2014-04-07 12:11:54 PM

    I think one of the biggest problems is that clients just don't always have there ducks in a row and there often seems to be something that keeps the deal hanging on a cliff by a fingernail. Realtors tend to not care what is involved for final approval for a client and the length of time it can take to provide them to the lender. This often times leads to financing and closing extensions. They ALWAYS push for the 5% deposit and letter of finance even though they are often times well aware that the mortgage could fall apart. I believe that changing the deposit and financing approval process that realtors follow is more important than anything else.

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  • Anthony C. on 2014-04-08 11:55:10 AM


    Your comment, although a little peculiar in the use of your comparisons, did hit on a very important point...

    To elaborate on your example, there should be a mandated "cooling off" period that is not exclusive to condominiums (under the Condominium Act in Ontario) but applicable to all other real estate transactions, whether freehold or otherwise...and it should be federally mandated to ensure balance throughout all Canadian markets.

    That way all the players in the transaction are protected...insurers, vendors, buyers and of course the banks...

    Now to get the major real estate regulators and, dare we say, the government behind this would be a challenge of course but ultimately would benefit the market and perhaps also reduce potential liability issues from arising as well as calming down the repulsive bidding war - multiple offer frenzy, which is a major contributor in driving property values in major urban centres through the roof.

    Anyways, wishful thinking on my part...

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