Broker: Insurers are now tighter than lenders

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It’s hard enough getting certain clients approved by lenders, and now brokers are having to deal with more conservative mortgage insurers as well.

“I did a number of files [last] week where the lenders wanted them approved but the insurers wouldn’t insure them,” Morris Briglio of Verico The Mortgage Advantage told “The insurers aren’t listening to the lenders.”

According to Briglio, he has noticed this sort of pushback from the mortgage default insurers since 2011, but that they have become stricter recently. He believes the B-20 rules are partly to blame.

“CMHC and the private insurers are the ones dictating policies to lenders which shouldn’t be the case because the lenders know how to [underwrite],” he said. “We might as well send applications straight to the insurers; it’s no longer the lenders who have the power.”

According to one broker, this is becoming increasingly common in specific areas.

“It’s a moving target at all times,” Jeff Attwooll of Verico K-W Mortgage Inc. told “Insurers in Alberta are looking at deals in a Microscope."

Indeed, at least one mortgage default insurer has already admitted it has tightened its underwriting in the oil-rich province.

“We haven’t pulled out of the market by any means,” Levings told an investor conference hosted by National Bank in late March. “What we’re doing is we’re looking at the stacked risk factors a lot closer — so people that have higher debt service ratios, that are employed in the oil and gas sector, that may be dependent on one income versus two, that are buying a home with five per cent down — we’re going to take a lot closer look at that deal.”

Still, Briglio – a B.C.-based broker – is noticing the trend outside Alberta.

And even Attwooll, whose business is in Ontario, is encountering similar problems.

“I’m hearing from lenders that insurers are being a lot pickier,” he said.
  • Broker on 2015-06-02 9:59:49 AM

    "It's no longer the lenders that have the power". No sir, lenders have never had the power. For the last 10 years I have had lenders 'believe in the file' to find that the insurer will not insure the deal. This happens every single day in this business, this is not new. They may be tightening up but the 'game' hasn't changed in terms of whom has the power.

  • Omer Quenneville on 2015-06-02 10:06:49 AM

    I'm aware of several deals that didn't make it past the insurers desk. It is important to have your deals subject to bank inspection and insurer before you remove the condition.

  • Ron Butler on 2015-06-02 10:28:11 AM

    The two insurers are independent businesses that are allowed to make their own approval decisions. One very odd decision cost me a $818K mortgage yesterday, the client was so mad they did not even give me a chance to switch lenders and insurers, they felt insulted that the insurer had rejected the property.

    Yes, insurer decisions cost us money, I get it, but these are the companies that are on the risk if a mortgage goes sideways; they must be allowed to make their own underwriting decisions.

  • Omer Quenneville on 2015-06-02 10:59:50 AM

    Banks are just as cautious these days. I was doing a mortgage with RBC and they were confirming the confirmations. Client got really frustrated.

  • Rick Robertson on 2015-06-02 1:05:32 PM

    pre Ron's comment, "Yes, insurer decisions cost us money, I get it, but these are the companies that are on the risk if a mortgage goes sideways."

    A lawyer speaking at a conference I attended pointed out that even though the insurer might pay the lender for any shortfall in the event of payment defaults, there is still legal space to sue the original borrower if the proceeds of a Court Ordered Sale comes short of the insured amount.

    This brings up a point that has often caused me to question why the insurance premiums are as high as they are. If only 3% or 4% or 5% of all the deals go into default, and most of the mortgage money is recovered from a Court Ordered Sale, why the big premium.

    In numbers, if 5% of the files defaulted and say only 80% of the mortgage balance was recovered, then overall 20% shortfall times 5% of the files, is only 1% overall payout! ??

    Is that insurance premium actually for default insurance, or is the lions share for: market research, seminars, conferences, golf events, and advertising??

  • Ron Butler on 2015-06-02 1:22:58 PM

    Rick, all of these companies have financials that can be seen on line, all of them the significant claims losses, their is no mystery here. Insurance is cyclical: sometimes a decade or two goes by with normal losses, then all hell breaks loose and huge losses eat into capital reserves. We have had mortgage insurance companies go bankrupt in this country before so there is no sense in suggesting that the mortgage insurers are an eternal profit printing press. There is also no point in being mad at them for being good corporate citizens of our brokerage space, are you mad at the lenders for buying a broker lunch? The financial data on these companies is public record, it's no different than every insurer, metaphorically speaking they are nicely profitable till a hurricane rolls across Florida and then that year they are losers.

  • mono line lender on 2015-06-02 3:20:24 PM

    Seems every time I read this forum the most lively debate is centred around the joust and pare of risk. That is, that some believe lenders, MIs, investors et al have a flaccid approach to risk. I won't comment on the calculations in some of the posts; only to say the are highly simplified: here's a couple of additional perspectives as to why premiums are higher with no simple line to loss.

    Liquidity. The CMB/CMT are operated by CMHC (with private participation) to provide reasonably priced liquidity to FIs. Don't need to tell you how some of that is funded. So no CMB, no way for smaller FIs to stay in the game from a competitive landscape, so less of us more big bank....and it wont be long and there will be tears before bedtime.
    Another point. DOF, OSFI, indeed the executive of our government are sincerely concerned about the levels of indebtedness and the frothy real estate markets in the country. I would suggest that it is less about bulking up the MI war chests (although profit taking isn't a crime last I checked), but to benignly slap the governor on this overheated and largely overvalued real estate market. Too many smart guys who went to Harvard and Wharton and London School of Ecom say I'm listening.
    Ron, I swear I'm waiting for you to be wrong one of these're not wrong on this. Dammit. LOL
    I've suggested before here and I will repeat: the tone of some of this would be substantially different if all the participants who demand more risk be taken by others, participated to any degree in the assumption of any of that risk. I get it, my sister wanted me to share in the risk of jumping off the garage roof with her when I was a 8....she said you go first I'll be right behind you. She was. She landed on me and I took 7 stitches in the chin. My first lesson in risk management. You first.

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