“Something brokers need to understand really clearly is that any curtailment of portfolio insurance … and the government trying to influence a reduction in CMHC’s portfolio insurance only ends up creating high mortgage rates for Canadians,” Ron Butler
Butler Mortgage told MortgageBrokerNews.ca “We have to remember that right now all three of the companies, Genworth
, CMHC and Canada Guaranty are all profitable, well capitalized and doing well.”
The Conservative government released its yearly budget Tuesday, and in it mentioned the importance of keeping the use of bulk insurance – employed by monolines and banks to back their conventional mortgages – in check.
But efforts to rein in portfolio insurance could result in lenders having to raise rates, according to Butler, which will affect lenders, brokers and consumers.
“The effect of curtailing portfolio insurance is that monolines have to raise their rates because if their cost or their ability to get portfolio insurance becomes impaired or the cost goes up, then they will do less business; they have two choices – either pass the cost onto the consumer or they have to do less business because they’re restricted by the reduction of portfolio insurance,” Butler said.
The government's pledge on that subject wasn't part of the budget speech, but made in the 500-plus pages Finance Minister Joe Oliver tabled in the House of Commons Tuesday.
“The Government will implement regulatory measures that limit the extension of portfolio insurance through the substitution of mortgages in insured pools, tie the use of portfolio insurance to CMHC securitization vehicles, and prohibit the use of government-backed insured mortgages as collateral in securitization vehicles that are not sponsored by CMHC,” the 2015 Federal budget states. “The Government continues to closely monitor the housing market and assess measures to further reduce taxpayer exposure and risks to the long-term stability of the sector.”
The government reining in portfolio insurance will cost homebuyers – and price many out of the market, according to one leading broker.