Risk-based CMHC insurance would benefit first-timers

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The Canadian Mortgage and Housing Corporation (CMHC) said it would be open to implementing risk-based default insurance and one leading broker believes the move could certainly benefit one type of home buyer.

“Right now you have to be relatively squeaky clean to get approved for CMHC insurance,”  James Robinson of The Mortgage Centre told MortgageBrokerNews.ca. “You could have someone who just finished school who wasn’t the most responsible with paying their bills and once they’re out, working full-time, showing good credit for the past year the CMHC may say no under the current (underwriting rules).”

Currently, CMHC employs a standardized premium cost for each client who takes out mortgage default insurance but, according to National Post sources, Evan Siddall, president and CEO for CMHC is open to a more tiered approach; one that would charge high ratio homebuyers a premium based on their credit profile. However, the crown corporation did not provide any specifics.

“CMHC’s President has been consulting with a broad range of housing stakeholders across Canada over the past three months in order to gather information and perspectives on several different topics, including mortgage loan insurance,” a spokesperson told the National Post.

And while such a change could provide an opportunity for CMHC to charge customers more, it all depends on how the potential change is treated, according to Robinson.

“It all depends on how it would be administered. It could be an opportunity for a little bit of gouging; if all of a sudden they started to say, ‘you missed one credit card payment four years ago so we’re jacking up your premium,’” Robinson said. “If they say they’re going to go a little deeper and charge more then that’s a good thing; if in the past they would have declined the customer but would now approve them under the new rate premium structure that would be fine.”
 
 
  • Layth Matthews on 2014-04-07 1:36:34 PM

    Risk based pricing makes good business sense. A colleague told me they already do this to some extent by being more flexible on property values for stronger apps.

    Maybe we will get some competition between the insurers. You can tell the current system is a money grab because the private insurers all charge the same (don't they?) is that regulated?

    Competing insurance premiums would be another factor in a deal. Which lender? which insurer? Right now it is all about qualifying. With competitive risk based pricing it would also be about price of insurance! Another place where a good mortgage broker can add value.

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