“Seems every time I read this forum the most lively debate is centred around the joust and pare of risk,” one lender who chose to remain nameless wrote on MortgageBrokerNews.ca. “That is, that some believe lenders, [mortgage default insurers], investors et al have a flaccid approach to risk. I won't comment on the calculations in some of the posts; only to say they are highly simplified: here are a couple of additional perspectives as to why premiums are higher with no simple line to loss.”
According to the lender, the government is “sincerely” concerned about the level of indebtedness and the ever-increasing housing prices, and underwriters are listening.
“The tone of some of this would be substantially different if all the participants who demand more risk be taken by others, participated to any degree in the assumption of any of that risk,” the lender wrote.
The lender’s comments were spawned by one broker questioning insurance premiums.
“This brings up a point that has often caused me to question why the insurance premiums are as high as they are; if only three or four or five per cent of all the deals go into default… why the big premium?” Rick Robertson of Mortgage Mentor wrote on MortgageBrokerNews.ca.
Of course, as one broker pointed out, premiums aren’t determined by current default levels – underwriters have to account for the peaks and valleys of volatile financial systems.
“Insurance is cyclical: sometimes a decade or two goes by with normal losses, then all hell breaks loose and huge losses eat into capital reserves,” Ron Butler
Butler wrote. “We have had mortgage insurance companies go bankrupt in this country before so there is no sense in suggesting that the mortgage insurers are an eternal profit printing press.”
One monoline lender has come to the defense of both lenders and mortgage default insurers by commenting on how risk is assessed.