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 MortgageBrokerNews.ca, shortly after the amendments. “But what we’re seeing now is that those clients are now finding that they can no longer do that.”