Brokers discuss bank underwriting practices

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One industry professional is questioning why many are calling for improved underwriting standards among the big banks.

“Why are people so aggressive/negative towards banks regarding their underwriting practices. Their default rate is one of the lowest in the world - standing at less than 1/3 of one per cent,” commenter Andre Asselin wrote. “I think people have looked at what goes on in the USA and extrapolated that the behaviour of Canadian banks is the same.”

The conversation was sparked after news broke that CMHC is considering forcing banks to pay a deductible before mortgage claims are paid out – a move that some believe will lead to more careful underwriting.

However, according to many brokers it isn’t the issue of too-liberal underwriting that needs to be addressed, but the discrepancies between underwriting practices employed by the banks for their own employees and their broker partners.

“I feel the sentiments for this deductible is more about the exceptions made by the banks at their branch, and specialist levels,” Victor Simone of CMB Canada Mortgage Brokers wrote on “These advantages the banks are enjoying have created two levels of underwriting;  one for the independents that have tougher conditions like NOAs (and another for) the huge banks that get the same approvals insured without NOAs.”

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