Brokers to struggle with high ratio deals in one market

Brokers to struggle with high ratio deals in one market

Brokers to struggle with high ratio deals in one market The CEO of one mortgage default insurer believes Alberta is set to see an uptick in mortgage delinquencies and a drop in housing prices in the near future – and the insurer scrutinizing deals more closely.

“Our expectation is we’ll start to see [mortgage delinquencies] potentially in the second half of this year, so third quarter, fourth quarter it will start to pick up,” Stuart Levings, CEO of Genworth Canada told the Globe and Mail.

In anticipation of this, Genworth has sent a higher number of deals to underwriters to be evaluated, as opposed to relying on a computer algorithm.

As a result, the insurer has rejected around 8.5 per cent of Alberta’s deals, an increase of 1.5 per cent over average underwriting rates.

Levings expects prices to fall 8 to ten per cent in Alberta by the end of the year.

The oil industry – a major contributor to Canada’s economy – has taken a beating, with prices falling 60 per cent at certain points this year. Oil currently sits at $60.40 per barrel.

Genworth’s conservative underwriting has been influenced by the effects the 2008 recession had on the insurer – and the overall housing market – in Alberta.

“Alberta was literally a housing bubble going into 2008,” he told the Globe. “House prices went up 15-20 per cent a year, two to three years in a row. It was unheard of.”

As for unemployment rates, Edmonton reached 5.3 per cent in March; Calgary spiked to 5.2 per cent. Levings believes the overall unemployment rate in Alberta could eventually hit seven per cent.
  • Ross Kay 2015-05-07 9:40:02 AM
    44% of all home owners in Calgary would lose money in 2015 if they sold with a REALTOR when inflation is taken into consideration.

    Prices in 2015 dollars are now all the way back to March 2007 purchase prices in those 2015 dollars.

    While years of mortgage payments have reduced CMHC and Genworth's risk exposure ( the consumer loses not the insurer) over 45,000 properties in Calgary are currently underwater totally if required to be sold.

    Prices have been falling in Calgary but have been hidden behind the fact that market was in OverSold condition but as of April 30th is back to the more risk free way of selling first and buying after.

    2777 higher priced homes that had to be liquidated in Q1 2015 to complete Q4 2014 purchases that which were set to close in Q1/2 2015 have now been addressed.

    Plummeting prices since January will now be recorded in the CREB monthly average selling price.
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  • Tony Piattelli 2015-05-07 9:44:41 AM
    Here's what really doesn't make sense with this perspective. The insurer's industry has been built around client's meeting specific rules/guidelines to qualify. What we are seeing in Alberta are people with 675 beacon scores, 25% GDS and 38% TDS with 1.5 years full time employment 4 years in the same field getting declined because they work in the oilfield. Reason for decline: Tight ratios, low CB, only 1 year at full time job. If the deal fits your guidelines, then approve the deal. Oh yea, as to the comments from 2008 after all the years of consecutive growth, house values in Alberta only dropped 10% and have since rebounded. No Genworth isn't out money nor did they lose money. My concern has to do with how they adjust their approvals on an ad hoc basis depending on whether someone works in the oil industry. This borders on discrimination.
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  • Ross Kay 2015-05-07 10:00:28 AM
    The best thing for those declined is that Genworth is actually saving them 10's of $1000's of dollars by stopping them from making a foolish financial decision ( buying at peak prices ).

    Maybe Genworth should have listened to the REALTORS association in Calgary in January and expected price increases in 2015 and only a minor slowdown.

    In Calgary people can walk away from their homes something you can't do in other provinces. As such prudent lending policy should have addressed this fact years ago.

    The best solution available which would still allow Calgarians to capitalize of today's low mortgage rates would be to Appraise properties at 2007 Valuation and loan on that assumption.

    In all fairness this is how all mortgage debt that is required to be insured should be loaned but that is not possible if the Canadian housing market is to continue in a manner that allows the housing stock to grow and meet the demands of the population.
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