Brokers split on CMHC proposal

Brokers split on CMHC proposal

Brokers split on CMHC proposal Broker opinion is split -- following news that CMHC is considering banks to pay a deductible before mortgage claims are paid out – with some believing the move will lead to more careful underwriting and others thinking it could result in higher fees for clients.

“This should hopefully force them to scrutinize and properly underwrite their deals submitted by their employees a bit more closely,” Daniel McKay of Alberta Mortgage Centre wrote on “I'd love for them to have to pay deductibles on insured mortgages and then lose that money and receive no compensation on the defaulted mortgages when CMHC discovers that they granted approval based on misrepresentation or fraud on the part of that bank or their employee(s).”

According to Financial Post Sources, OSFI and CMHC are in discussions about the potential policy change, though the Canadian Bankers Association, unsurprisingly, opposes the move.

And while most responsible underwriting may be one result, some brokers – who believe the banks will pass the extra cost onto the borrower -- aren’t so optimistic.

“In the end the entire borrowing public would end up funding the deductibles for those that defaulted through higher rate,” Ron Butler of Verico Butler Mortgage said. “Like every other government idea it seems to make sense and it appeals to the public: let the big banks suck up some deductible costs to teach them to be better underwriters but in the end that will never happen.”
  • Carmen Muscat 2014-09-12 12:08:29 PM
    Instead of imposing a deductible, the Government should investigate the Bank when the mortgage is defaulted and then impose a deductible.
    This will make the banks more cautious and diligent in their lending.
    This hopefully will not effect the borrowing public.
    The banks make enough money on the public and should be legislated not to pass on the deductible to the consumer.
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  • Andre Asselin 2014-09-12 1:13:08 PM
    Why are people so aggressive/negative towards banks regarding their underwriting practices. Their default rate is one of the lowest in the world - standing at less than 1/3 of 1%. I think people have looked at what goes on in the USA and extrapolated that the behaviour of canadian banks is the same.
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  • Victor Simone 2014-09-13 8:36:25 AM
    @ M. Asselin,
    I feel the sentiments for this deductible, is more about the exceptions made by the banks at their branch, and specialist levels. These advantages the banks are enjoying has created two levels of underwriting 1. For the independents that have tougher conditions like NOAs 2. The huge banks that get the same approvals insured without NOAs.

    If we could all be on the same playing field at the insurers, it would help the independent channel for sure. This deductible seems like a good thing, imo.

    The banks have good lending practices, but the deductible is a standard feature in most every type of insurance plan. Moreover, this deductible may just help level the underwriting playing field by not paying claims to banks that don't properly underwrite the risk.
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