Mortgage insurer sees drop in premiums

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Tougher refinance rules have not only affected CMHC’s bottom line, but Genworth’s, with the “other” default insurer blaming them for a $6 million chop to premiums in Q3, compared to last year.

“The year-over-year decline was driven by a smaller mortgage origination market as compared to last year due to fewer insured refinance transactions, partially offset by increased market penetration by the company,” said Genworth Canada in releasing its third quarter numbers Thursday.

The report reveals that net premiums for the three months ended Sept. 30 came in at $160 million – $6 million lower than the value of premiums written in Q3 2010.

The drop is considerably smaller than CMHC’s 40 per cent drop in refis during the second quarter. Still, it reinforces broker concerns about the effects of the government’s decision to lower the loan-to-value ceiling on those mortgages.

“It’s a repeat of what we saw when the government increased the down payment requirements for CMHC insurance on rental properties,” Curtis Cannon, a sub-mortgage broker with TMG The Mortgage Group in Prince George, B.C. “By decreasing its maximum loan-to-value to 85 per cent from 90 per cent, the government is basically saying, ‘We’re out of the refinance business.’ That’s regrettable because CMHC seems to have forgotten what they’re there for – to put and help keep Canadians in their homes.”

This summer the Crown corporation announced that its insurance activity for refis fell 40 per cent for the quarter ended June 30, compared to “pre-implementation levels.” Moreover, the report adds, that activity has “continued to remain around this level.”

That translates into bad news for broker clients, who through no fault of their own, need to pull equity out of their homes in order to cover debts racked up by a death in the family, divorce and/or illness, said Cannon, concerned the government has abdicated its responsibility to aid those Canadians in its move to keep consumers from “using their homes like an ATM.”

“I don’t think that the new refi rules are good, at least not across the board in that the difference between accessing a LTV of 85 instead of 90 per cent may force someone who is in a tough situation out of their home,” said Cannon.

His comments run counter to those of other brokers who embraced the rule changes around refinancing as a way to put an end to “habitual refinancers.”

“Among our team of six brokers, we’re seeing about  three to four clients a month who we would identify as habitual refinancers – meaning they typically have refinanced their credit card debt back into their mortgages every two years,” Bob Smith, broker/owner for Verico K-W Mortgage, told, shortly after the amendments. “But what we’re seeing now is that those clients are now finding that they can no longer do that.”


  • Angela Wong-Liao, Invis Inc on 2011-11-05 4:19:03 AM

    I attended an Economic Outlook seminar conducted by TD Chief Economist Craig Alexander yesterday, Greece is at 180% debt to income ratio & we are at 148% debt to income ratio, the truth is that can we afford not to reduce and control our debt load ratio. Yes, I agree that the tightening of the mortgage rules for refinancing from 90% to 85% would affect the volume of our business, however, if Canadians keep on using their equity in their homes for consolidation of debts, what will this scenario affected the overall well being of the Canadian economy.

  • Credit Guy on 2011-11-05 5:49:22 AM

    On CMHC's website it says:
    "Today, CMHC remains committed to helping Canadians access a wide choice of safe, quality, affordable homes, and making vibrant and sustainable communities and cities a reality across the country. CMHC is truly home to Canadians."
    Sounds like a good public policy to help people buy homes. Emphasis should be on AFFORDABLE. I missed the part about allowing people to overspend, rack up debt and then have the government to guarantee their mortgage beause other lenders wouldn't lend them any more money.

  • AB Broker on 2011-11-08 5:44:55 AM

    CMHC has truly lost it's mandate, as the article and previous posts have alluded to. The federal government (all political parties) have figured out how profitable the insurance industry can be. Case in point, with the new changes to guidelines, CMHC has greatly reduced the amount of insurable risk they are taking on, so why have their premiums not decreased? Also, the government's attitude towards consumer debt can be summarized this way: "We are okay with Canadians taking on insurmountable debt levels, so long as we are not on the hook for it through a CMHC insured mortgage." As far as both CMHC and Genworth should be concerned, they've taken a lot of money out of my pocket in the last couple of years by not insuring what are otherwise good deals. I have a mind like an elephant when it comes to things like that. When the markets finally get good again, I suspect that some new private mortgage insurers will enter the industry, and they will end up with the bulk of my business just for not being CMHC or Genworth.

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