Banks taking on more default risk: Not exactly a home run

Banks taking on more default risk: Not exactly a home run

Banks taking on more default risk: Not exactly a home run CMHC is still considering requiring mortgage lenders to pay a deductible on mortgage insurance claims but that plan may, in fact, harm clients according to one broker.

“It sounds like something banks would then work into the (mortgage) cost to a client,” Nick Bachusky, a broker with Verico The Mortgage Advisors, told “You have to see the stats as to why and how they would come to this decision; I’d like to see why it would be beneficial to clients.”

During a speech at the C.D. Howe Institute Roundtable Luncheon in Calgary earlier this week, Siddal said the Crown Corporation has not shelved a potential plan to require lenders to pay a ductable on mortgage insurance claims, according to the Canadian Press. It's a proposal that was first put forth by the Conservative government.

“We are working with our colleagues at the Department of Finance, the Bank of Canada and OSFI to explore ways to distribute risks more effectively across the financial system while maintaining Government support for housing finance,” Evan Siddall, President and Chief Executive Officer, Canada Mortgage and Housing Corporation, said at the luncheon, according to his speaking notes.

The Canadian Bankers Association sent a letter to CMHC last summer, warning that forcing banks to take on more risk associated with home loans could lead to financial instability.

 The letter was obtained by The Canadian Press through an access-to-information request.

“As the CMHC explores options to reduce the federal government’s exposure to the housing market, we would like to ensure that any changes made to the housing finance system are done so with a complete understanding of their implications on the housing and mortgage markets,” the association said in a letter, dated Aug. 6, 2014.

And while the potential plan may encourage more prudent lending and help better safeguard the housing industry, Bachusky argues homebuyers could be negatively impacted.

“Who is this really going to benefit? I’m not sold,” Bachusky said. “It could cost more to Canadians if the lenders work it into mortgage costs.

“If it impacts (banker heads’) bonuses at the end of the year, they won’t take this lying down.”