With all the talk about the CMHC potentially instituting risk-based insurance premiums, it’s the mortgage default insurance policy one broker would like to see changed.
, Canada Guaranty will not even look at a client until they have bought a house,” James Robinson of The Mortgage Centre told MortgageBrokerNews.ca. “So somebody puts an offer in, unconditional, because they are in a bidding war and even though there might be a piece of paper that says you’re pre-approved, it isn’t worth the paper it is written on because it has only been looked at by the broker and maybe the lender (but) not the insurer.”
It’s an issue Robinson has faced a number of times; over-excited clients get drawn to a property and forced to enter a bidding war because of the level of competition in the market. It’s also a trend that has increased recently, with a BMO report from early March finding that 36 per cent of Canadians are willing to enter a bidding war.
To combat this Robinson thinks the three mortgage default insurers should provide pre-approvals prior to clients putting in an offer for a property.
“Our business is in Toronto and the way the real estate market has decided to price properties now (is the most frustrating thing I’ve face lately) and it seems that there is a real disconnect because people are being forced into bidding wars where they are not allowed to have any conditions whatsoever so they’re taking a risk,” Robinson said. “One of two things has to happen: Either the insurers have to start doing pre-approvals or this practice of unconditional, crazy bidding has to stop because … we’re always coaching people telling them they can bid whatever they want but I can’t give (them) a firm approval until you have bought the house.”
For the time being, however, all brokers can do is coach their clients to include a contingency plan when planning on purchasing a home with a high-ratio mortgage.
“We always force our clients to have a plan-b; talk to your parents and see if they will give you more money if something goes wrong or co-sign,” Robinson said. “Otherwise they have bought a house and what then?”