Level the playing field for Genworth, expert warns

Level the playing field for Genworth, expert warns

Amid growing economic uncertainty in Canada’s housing market, mortgage finance expert Jane Londerville has called for a levelling of the playing field for government-backed residential mortgages.

In an interview with the Macdonald-Laurier Institute, Londerville, a professor at the University of Guelph, said the government guarantee of 90 per cent of the value of mortgages insured by private firms compared to 100 per cent of those insured by the CMHC was a “troubling distortion.”

While Londerville, who has an MBA from Harvard, praised Canada’s prudent lending criteria she said the current gap in insurance has resulted in an uneven playing field.

“Particularly during the financial crisis, we saw that CMHC continued to write mortgage insurance while there was a drop-off in what the banks sent to the leading private insurer, Genworth Financial Canada, because banks were so tight on capital that the extra capital reserves they had to hold to cover even that 10 per cent guarantee gap made a substantial difference to them,” she said.

Londerville called for the government to give all insurers the same level of protection.

“Either all participants should be at 100 per cent guarantee, or zero guarantee, or something in between. It could be the 90 per cent private firms now get, if the mortgage insurance portion of CMHC was spun off,” she said. “Such a change would mean more competition in the mortgage insurance business.”

She said the imbalance was evident in CMHCs 70 per cent of the market of mortgage insurance, the lion’s share not accounted for by differences in services provided by CMHC versus its competitors.

Londerville wrote a 2010 paper for MLI suggesting the government put CMHC under the supervision of the Office of the Superintended of Financial Institutions; change federal legislation for covered bonds and close the insurance gap between private lenders and the CMHC.  

  • Derek Rowley 2012-06-21 2:33:36 AM
    In regards to the subject, Realtor-Client Incentives, this is really nothing new but with the main difference being the agressiveness of the banks. No longer offering trips or a night out, etc, now the incentives offered to the realtors is the opportunity to line their financial pockets and offering appraisal fees and legals paid for. In regards to this, do the legal fees include Land Transfer Tax here in Ontario? In additiuon ae these freebies being so called incentives showing on the Disclosure Form? Is there some form of a front end load to offset these costs to the bank such as a higher interest rate? Regardless, such incentives are blinding to the client who may not see the full picture.

    For a mortgage agent to compete here is virtually impossible uless you are willing to part with some of your commission and in the economics were are currently experiencing relly is not a smart moves.

    Our mono lenders need to sharpen their marketing skills and be more attentive to the broker channel and address all concerns. Having just now read about New lender woos 625 brokers, that is awesome, but for how long? We have seen new lenders enter this industry offering tons of incentives and then down the road many changes occur.

    Another area of concern is the fees we have to pay just to satry in te industry. The mobile bank specialist don't pay a lot of the fees we pay and get the majority of their business from the branches. It is obvious that we are not playing on a level field - we never have been and probably we never will.

    Continued good selling to all my fellow brokers and agents

    Derek Rowley

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  • Rick Lunny 2012-06-21 4:05:29 AM
    While Prof. Londerville raises many valid points I would argue the shift to CMHC from the private insurers was not due to increased capital costs. Rather,sovereign vs monoline private insurer guarantees. The banks all saw what happened to the monoline insurers when the CDO ( sub-prime) market collapsed in the U.S. They couldn't pay. The 90% government guarantee applies individually to each property. Staying with the private insurers at the time would have meant a near certainty of a 10% loss on each defaulted mortgage in a melt-down crisis. Given the programs and costs to the consumer were virtually identical, why take any unnecessary risks?
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