Canada’s two private mortgage insurance companies, Genworth Canada and Canada Guaranty have informed Canadian mortgage lenders that they will continue to offer self-employed insured mortgages as well as second home mortgages, and not follow in the steps of CMHC which last week announced that they would be continuing their similar programs.
I stated a few days ago that I was not particularly worried about the CMHC decision from a professional standpoint as the programs they were eliminating were not used very much and would not impact my ability much as a mortgage broker to get mortgages approved. I was more concerned about Genworth and/or Canada Guaranty discontinuing their programs, as particularly the Genworth self-employed mortgage offering is a better product and is more popular than the CMHC product was.
Self-employed mortgage insurance good for real estate market
Thankfully for the market and for self-employed mortgage borrowers, we can continue to obtain mortgage approvals for self employed borrowers with less than 35 percent down-payment, and with as little as 10 percent down-payment. It would have created a significant void in mortgage lending if none of the insurers had continued with the program.
I also think it is beneficial for the insurers to keep this program, as the premiums charged for it are higher than fully qualified insured mortgages, and with Genworth reporting lower claims and improved revenues recently, it seems that their operations are strong just as they are. The main protection they will need is strong adjudication of individual loan applications to make sure that they minimalize riskier mortgages within their insured portfolio.
Overall, it is also worth noting that lending options are starting to open up a little more over the past year, which is a positive sign that confidence is being restored to the economy and the housing market for the first time since the 2008 U.S. housing collapse. It can only serve as positive news to homeowners that the market will continue to stay strong and home prices will continue to increase steadily.
Last week, we received the news that CMHC has decided to eliminate two of their mortgage lending programs, specifically the self-employed simplified (also more gengerally known as self-employed mortgage) and their second home program. At this time, the other two mortgage insurers in Canada, Genworth and Canada Guaranty, have not announced any similar measures.
CMHC has claimed that they made this decision, along with their decision to increase mortgage insurance premiums, to help reduce taxpayer exposure and contribute to the stability of the real estate market. (CMHC is a government corporation); The changes are due to come into effect on May 30th. They also state that eliminating these programs only affects less than 3% of their funded mortgage units.
How will CMHC’s decision impact the housing market and economy?
As a mortgage broker, I am often somewhat disappointed to hear of lender options, or lending programs disappear or be altered in a way that makes it more difficult for me to help my clients. Although sometimes I can understand the reasons behind it, and sometimes it may be for the best, it makes my job more difficult. When I read this news, I met it with an ironic laugh. CMHC says it all; the two programs only accounted for less than 3% of their lending. CMHC’s stated income program was poor, to put it politely. There are better options for such a program.
The second home program is only for the purchase of mortgaging vacation and recreational properties with less than 20% down-payment. This program is also seldom used, and I don’t think anyone is going to lament its loss, especially in light of other insurers continuing to offer similar programs. Many people looking at buying recreational properties will often have 20% down or more anyway.
Is eliminating this program really protecting taxpayers?
Although I am not that worried about these programs demise with CMHC, particularly if the programs continue to be offered through other insurers, I can’t help but feel that CMHC contradicts themselves in their reasoning about this decision. I feel this way for the following reasons:
The self-employed program was CMHC’s most expensive program, with insurance premiums almost double a regular mortgage premium at the same down-payment level, so they did price the program to compensate for a higher level of risk.
Less than 3% of their mortgage insurance policies issued were these two programs. This hardly seems like a looming threat that could destabilize the housing market, and has already been compensated for in the risk premiums charged.
CMHC is not a charity case. They are not in business to lose money. The other insurers are not in business to lose money. Genworth Canada just announced earnings were up and insurance claims were down by over 36% from a year ago, despite having the same insurance premiums as CMHC. CMHC is profitable, and the program is profitable if two private enterprises offer a similar product.
Previously CMHC would say that their mandate as a crown corporation was to help Canadians in home ownership. Now, they seem to say that their mandate is to contribute to the stability of the real estate market. Although it is not a significant difference to me as a mortgage broker in this instance, they appear to me to be primarily depriving themselves of income. It is ironic considering most government enterprises lose money, and one that makes money is effectively trying to remove themselves from the business.