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.”
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