Former CMHC competitor petitions for mortage insurance fees to drop
By Garry Marr
A former senior executive at one of Canada Mortgage and Housing Corp.’s competitors says it’s time for mortgage default insurance premiums to drop because the Crown corporation doesn’t have the same percentage of risky clients due to tighter loan regulations.
Brian Bell, who used to be vice-president of private insurer Canada Guaranty and now runs his own real estate brokerage, is calling for a 15% reduction in fees that can easily top $13,000 on a $500,000 home — a move he says will provide much needed relief to the beleaguered first-time home buyer.
“The risk has been lowered, the mortgage insurance industry has been so profitable and they haven’t done a review in…I can’t remember the last time they reviewed their rates,” said Mr. Bell, who is now president of iPro Realty Ltd. and runs a website called townhouses.ca. He used to work for CMHC where he learned about the mortgage default insurance industry.
By law, any consumer with a downpayment of less than 20% and borrowing from a financial institution regulated by the Bank Act must get mortgage default insurance. CMHC controls about three quarters of the market with Genworth Financial and Canada Guaranty splitting the rest.
All insured mortgages are backed by the federal government, in the case of CMHC for 100% of the value of the loan and 90% for private players. Ultimately the government could be on the hook for close to $1-trillion, a price tag that makes some think there should not be a shrinking of fees.
“They have room to do it,” said Mr. Bell, about lowering fees. “Insurance is all about risk and losses. If you’ve changed your risk and underwriting criteria and made it tighter, you’ll have lower loan losses.”
He points out the Crown corporation has averaged $1.1-billion annually in net income over the last five years and estimates a 15% reduction in fees would have amounted to $194-million in 2013.
“I work with first-time home buyers every day and that’s the group that has been hurt,” said Mr. Bell. “I’m putting my name and reputation on the line after being in the industry for so long. I’m not going to be getting any friendly emails [mortgage insurers].”
Not everybody is convinced it’s time to lower fees.
“To the extent that it assists first-time buyers it is a good thing,” said Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals. But he wouldn’t endorse the petition.
Rob McLister, editor of Canadian Mortgage Trends, said he doesn’t think a petition to lower fees will gain much traction in the marketplace.
“The risk has gone down but the fact is I don’t think [fees] are egregiously priced. I’d rather see them higher than lower and CMHC have a buffer in case things go bad,” said Mr. McLister. “If you don’t like the fees, put 20% down.”