Name: Robert McLister


Biographical Info: Robert McLister is one of Canada’s best-known mortgage experts, a mortgage columnist for The Globe and Mail, editor of (CMT) and founder of intelliMortgage Inc. and Robert created CMT in 2006. The publication now attracts 550,000+ annual readers, is a four-time Canadian Mortgage Awards recipient and has been named one of Canada’s best personal finance sites by the Globe & Mail. Prior to entering the mortgage world, Robert was an equities trader for eleven years and a finance graduate from the University of Michigan Business School. Robert appears regularly in the media for mortgage-related commentary (recent coverage: He can be followed on Twitter at @CdnMortgageNews


Consultation-FB“…Lenders have, as I’ve said in the past, no skin in the game and therefore the incentives are misaligned with good risk management.”

This quote, from CMHC CEO Evan Siddall, encapsulates policy-makers’ narrative on Canadian mortgage underwriting. This is what the public is reading about Canada’s housing market—and it worries them, but it shouldn’t.

(Siddall later told me that he misspoke, and that lenders do have skin in the game, but “not enough.”)

Siddall asserts that lenders are prone to moral hazard. “You would not design an insurance system with the insured having something more at risk.”

He adds, “Canada’s mortgage insurance system is one of very few, if any, insurance systems without a deductible.” He says our housing market is “not a well-designed system,” asserting that “a lender should not offload so much of its risk.”

“This is about aligning interests to face an unknown future with a more ‎robust system. It’s more about regime design, not current conditions.”

And so, he and the Department of Finance have what they think is a solution. After two years of CMHC preparing us for this inevitability, regulators have released a proposal whereby lenders eat more losses on government-guaranteed mortgages.

Here’s what we know about it so far, based on high-level industry conversations and yesterday’s announcement from the Department of Finance (DoF):

  • How risk sharing will likely work: Lenders would file a claim with the insurer when a borrower defaults, the insurer would pay 100% of the lender’s claim (if eligible) and then bill that lender for its share of the loss in the following quarter.
    • This would leave securitization investors insulated from risk, a wise move that avoids utter destruction of the NHA MBS market.
  • How much loss would lenders share: The amount would equal roughly 5% to 10% of the outstanding loan principal. That’s $15,000 to $30,000 on a $300,000 mortgage.
    • We’ll bet on the lower end of that 5-10% range for two reasons: a) Anywhere near 10% would be hugely disruptive for lenders, and b) regulators like to sometimes throw out big numbers so the market is thankful when they impose a smaller number.
  • How would it affect competition: The DoF writes, “Lender risk sharing could change competitive dynamics in the mortgage market.” Could? Whomever drafts this stuff has comedic talent. Reducing insurance coverage will hammer competition even further, potentially costing Canadians hundreds of millions in extra interest each year.
    • Here’s another statement from Friday’s release that might have been drafted by Captain Obvious: “Small lenders with fewer or less cost-competitive funding sources may…be less able than large lenders to absorb or pass on increased costs.”
      (I’m sure some policymakers would suggest we’re making implicit assumptions about the future here; that need not be true. But I don’t see how an RBC and a small monoline lender could possibly weather these changes equally.)
    • Insurers and funders buying mortgages will now have lender counterparty risk (i.e., risk that the lender won’t be able to pay its share of claims). Potential outcomes:
      • Insurers may increase premiums disproportionately for smaller, less capitalized lenders.
      • Funders may buy mortgages from smaller lenders at much less favourable prices, limiting their ability to compete.
    • How might consumers fare: Here’s what we expect:
      • Mortgage rates will shoot up as lenders try to offset this new cost, and as bank challengers become less able to undercut the banks.
      • Lending will partially dry up, or incur material surcharges, in rural, remote, high-unemployment or economically undiversified areas.
      • Insurance premiums may drop (one potential bright spot in all of this).
    • How much could rates jump: In short, meaningfully.
      • The DoF writes, “Preliminary analysis suggests the average increase in lender costs over a five-year period could be 20 to 30 basis points.1 (That’s over five years.)
      • Preliminary estimates from four lenders we spoke with are that the DoF’s estimates are laughably low, that the rate increase required to offset these changes is at least 15-20 basis each year.
      • The DoF suggests rates could rise more for “loans with lower credit scores in a region with historically higher loan losses.”
    • When would this take effect: We’ll get more clarity on this by Tuesday, but the final regs could be out before next summer, and it might take another 1-3 quarters to implement.


Is This All Justified?

Canadians are taking on too much debt. No question about it. And extreme housing prices in Toronto and Vancouver are flashing a red alert.

But this proposal isn’t about that. According to the feds, it’s about future underwriting quality and aligning lender incentives.

The government and CMHC charge that lenders don’t have enough reason to avoid risky lending. Yet, to the best of our knowledge, the Department of Finance has never publicly released any data to support this. 

In fact, CMHC’s own numbers peg insured NHA MBS arrears at a paltry 0.28% for banks (five times lower than in the U.S.), and a microscopically low 0.11% for mortgage finance companies (MFCs). 

The Charges Against Lenders

Officials claim that lenders aren’t sufficiently motivated to underwrite prudently, yet the government possesses the ultimate hammer already: It can deny insurance claims if lenders don’t underwrite to the exact specifications the DoF itself has created.

Officials say that lenders can’t be trusted to avoid moral hazard, but the government can easily compel regulated insurers to audit lenders and police underwriting effectiveness. Heck, if they’re not audited enough, audit them more.

Officials assert that arrears data are a “rear-view” indicator, but we’ve had decades of low arrears. How many years of rear-view indication do we need before we can start believing it?

Officials charge that the housing finance system hasn’t been tested yet, but what kind of test was the worst financial crisis since the Great Depression?

Officials warn that debt-to-income is at an all-time high, but lenders must already decline heavily indebted borrowers that don’t meet federal guidelines.

Officials downplay equity as a risk mitigator, but who loses money on a 75% LTV bulk insured mortgage?

Officials argue that MFCs get a free ride on taxpayers’ backs, but Ottawa is riding on lenders’ backs at the same time, through lender-paid insurance premiums, securitization guarantee fees, socioeconomic homeowner benefits and a more robust economy that generates higher tax revenue.

Officials charge that indebted borrowers are a risk to the mortgage system, but credit quality has soared since 2007 with 81% fewer sub-660 credit score borrowers, reports Genworth.

Officials suggest MFCs are “unregulated” and prone to fraud, but you don’t get arrears rates averaging 1 in 300 by turning a blind eye to fraud. (Of course, “unregulated” is a gross mischaracterization since, by virtue of their securitization activities, MFCs are subject to bank and insurer underwriting rules in B-20 and B-21.)

Officials argue that these moves encourage the further development of a private mortgage funding market, but where is this mythical market they speak of, what is Ottawa doing to cultivate it and how will it address the huge spread differences between bank-sponsored covered bonds and uninsured RMBS from lenders without investment grade credit ratings?

Officials say there’s excess risk to the economy, but withdrawing insurance support risks future liquidity crises, surging interest costs, less discretionary spending, employment losses in the economy’s #1 sector, a further entrenched bank oligopoly, falling equity in people’s #1 asset, wealth-loss effects and so much more.

Officials claim government-backed insurers have too much risk, but why not increase insurance premiums like every other insurance company in the world when risk is unacceptable? (Hint: It’s because insurance premiums are already actuarially too expensive for the true risk. That’s a fact by the way—if you believe CMHC’s own regulator-approved stress tests.)

Mandate Creep

The government has overstepped its mandate by stripping Canada’s world-class mortgage finance system of liquidity. Its incessant attacks on competition and mortgage choice can only result in higher costs for consumers, and the purported benefits don’t counterbalance these costs.

Consider taxpayers’ risk:

  • Ottawa guarantees roughly $774 billion of insured mortgages.
  • Arrears have averaged less than 1 in 300 (five times less than south of the border).
  • Average equity on CMHC’s insured mortgages is 46.8% (contrary to public perception, insured mortgages are not all high-ratio) and just 1 in 5 CMHC-insured borrowers currently have less than 20% equity.

Consider taxpayers’ reward:

  • CMHC has returned $20 billion in profit to taxpayers since 2006.
  • Insured lenders have saved consumers over $3 billion of interest in that time frame.

This is a question of cost-benefit, and Finance has simply not made its case. 

Suppose for a moment that Canada’s housing market gets annihilated. Imagine a U.S.-style housing catastrophe where an astronomical 6% of all prime insured mortgages go in arrears, with a 33% loss on each—again, insured mortgages have built-in equity buffers so 33% may not be realistic. That amounts to a $15-billion hit on insurers. (In reality we must assign a probability to a housing crash, so implied future losses are potentially less than this.)

But wait. CMHC alone has $16+ billion in capital plus more in unearned premiums. Moreover, Moody’s research pegs insurer losses in a U.S.-variety crash at less than half our estimate, or $6 billion.

Will a tail event burn through insurers’ capital someday? You bet your sweet bippy it will, just like the most expensive hurricane of all time (Katrina) ate a chunk of Allstate and State Farm’s capital. But you don’t complain about tail events if you’re in the insurance business. You price for them.

So let’s review. The current system has yielded over $23 billion in benefits to Canadian families and, housing armageddon notwithstanding, nothing is coming out of taxpayers’ pockets. 

Are Regulators Pulling the Wool Over Canadians…?

Objective data provides no economic rationale to dismantle what is arguably the most stable housing finance system in the world. Loss sharing is “a solution in search of a problem,” explains First National’s Stephen Smith, and he’s dead on.

Even banks—who could gain on rivals if this rule passes—challenge Ottawa’s rationale. “We don’t understand what a deductible is intended to achieve as a policy outcome,” Canadian Bankers Association policy expert Darren Hannah said. “If it’s supposed to be something to improve the quality of underwriting, well the quality of underwriting is already very strong.”

And, by the way, the government is not proposing “risk sharing” here. It’s proposing “loss sharing.” There’s a difference, because arguing that lenders incur no risk is an uninformed position that ignores their exposure to claims denial, loss of “approved-lender” status, loss of funders, loss of securitization conduits, loss of investors, losses for default management costs, loss of irrecoverable lender-paid conventional insurance premiums and loss of vital renewal and servicing revenue.

Penalizing lenders and consumers will not reduce defaults materially because lenders themselves are not a significant reason why borrowers default. Defaults are a function of unemployment, economic shocks, housing price shocks, overindebtedness, personal disposable income, interest rates, borrower confidence, loan-to-value ratio, loan amount, loan purpose, mortgage age, mortgage term and rate type—most of which can be underwritten for.

If a small group of mostly unelected policy-makers want to nonetheless force Canadians to pay thousands more for a mortgage, at least foster securitization alternatives that alleviate the disproportionate burden on small and mid-size lenders, and preserve consumer savings through competition. 

As it stands, the DoF is picking favourites, issuing press releases embracing competition while simultaneously destroying it, and costing consumers far more than they’ll ever save.


Sidebar: Yours truly doesn’t purport to be Merlin the Mortgage Policy Wizard and have all the answers. So if you see things differently, give us your take here. Just one humble request, and that is to keep posts civil and supported by fact. We won’t waste readers’ time by publishing comments that are rude or baseless.

Sidebar 2: Special thanks to the class acts on the Department of Finance and CMHC media relations teams. We’ve widely and publicly questioned their organizations’ policy choices but the professional folks over there always cooperate when we need answers.

1 A very rough estimate of the amount rates have fallen due to competition from brokers and insured lenders, and $1.8 trillion in mortgage volume over the past decade. A Bank of Canada study in 2011 found that “the average impact of a mortgage broker is to reduce rates by 17.5 basis points.” This, interestingly, approximates the broker’s advertised savings today (i.e., if you compare the lowest advertised 5-year bank rate, minus 10 bps discretion, and the average rate advertised by 100 of Canada’s most prominent mortgage brokers, as tracked by


Ten years ago this week, CMT sprang to life. What started as a consumer education site has transformed into a chronicle of what makes this business tick and its constant change.

We’ve reported on 2,800 stories since 2006 and my oh my, what changes we’ve seen since then—from the days of zero-down rentals, 95% LTV insured HELOCs and 40-year insured amortizations to today’s 20%-down uninsured rentals, 80% LTV uninsured HELOCs and (possibly soon to be) 25-year conventional amortizations.

A decade goes by quick and CMT has had a tremendous team along the way. My eternal thanks to:

  • a content editor who is second to none and embodies the 16-hour workday, Steve Huebl
  • our trusty copy editor Gina Fusco, whose definition of “maternity leave” is editing stories at 7:30 a.m.
  • the late Elizabeth McLister, who proofed every last word in the first four years, 
  • my amazing wife and broker, Melanie, for “paying the rent” while I do fun stuff like write, and
  • Mortgage Professionals Canada for its tremendous support of this publication.

We’ve had no shortage of spirited debates over the years, with a dash of controversy to keep things interesting. I’m not sure if I’ll make it another decade, but for now it stays fun. Whatever side of the mortgage debate you’re on, hopefully you’ve at least found the content stimulating.

Thanks for all your readership these past 10 years. Gratefully yours…….Rob


business acquisitionThere’s a race underway in the broker industry, a race for scale. Brokerage firms are uniting to achieve better economies in a shrinking margin environment.

And the mega-network trend is fast becoming a three-horse race, with DLC, Group Multi-Prêts Mortgage Alliance (GMP) and VERICO being the volume leaders, in that order.

Earlier this month GMP announced that it had narrowed the gap with volume front-runner DLC by purchasing 100% of Invis and its sister company Mortgage Intelligence. That purchase made Group Multi-Prêts Mortgage Alliance the largest full-service brokerage operation in Canada with 3,000 brokers and loan volume of $22 billion annually. (DLC says its run rate is $39 billion this year.)

We caught up with some of the key players in GMP’s acquisition: Luc Bernard, President and CEO of Group Multi-Prêts Mortgage Alliance; Michael Beckette, CEO of Mortgage Alliance; and Cameron Strong, CEO of Invis Mortgage Intelligence (Invis-MI).

Here are excerpts from that conversation:

On the impetus for the acquisition

  • Cameron: “…we looked at it and said, ‘…It makes a lot of sense for these full-service companies to combine and come together.’ We thought that the clear winners were going to be the brokers here…”
  • Michael: “It’s not about consolidation…Invis-MI was never for sale. It’s about opportunity…I think that’s [a distinction] that’s really, really important.”
  • Luc: “I can confirm that the organization [Invis-MI] was not up for sale. It was really through discussion and sharing the vision that we kind of reached a meeting of the minds. The rationale behind the transaction is quite simple. The [broker] ecosystem is evolving rapidly. We had another proof [with the latest mortgage rules]…In order to mitigate those [challenges] and capitalize on new opportunities, and allow essentially our brokers to capitalize on these opportunities, size does matter now.”

On the need for a strong full-service brokerage for consumers

  • Cameron: “…the changes and legislation never stop, as you know. The complexity of mortgage rules keeps growing, and it’s difficult for some people with [unique] financial situations (like self-employed borrowers)… I think that’s what makes brokers more valuable as specialists. Brokers and consumers face an ever-changing business and regulatory environment… We don’t believe (the consumer) can do this alone. We think the full-service model is effective and resonates, and we think that that is an important model going forward.”

On how GMP will compete with growing online competition (i.e. discount brokers, banks’ forays into the online channel, rate comparison sites, etc.)

  • Luc: “There are many segments, and we’re going to adapt our offering to segmentation. We’re not going to disclose our strategy… but we have the talent, we have the cash, and we have the technologies to support our brokers in reaching the consumer [online]…”

On the benefits of creating a larger brokerage

  • Luc: “Size brings you data, big data, and that gives us and the broker the ability to better understand and anticipate the need of the consumer.”
  • Michael: “Size matters as far as investment and technology services…[It] matters as far as the relationships that we can develop with lenders…One of the benefits of size that has not been available in the brokerage industry is the synergy of resources. We’ve got two profitable companies coming together to invest in systems, services, resources and products for brokers instead of doing it on an individual basis…”

On eliminating duplicate technology and excess staff

  • Michael: “I think it’s very, very important to understand that there’s two types of synergy, and the type of synergy that we’re focused on is on the revenue side, and investing twice as much in developing resources rather than looking at, ‘Okay. Slash this. Slash that.’”
  • Luc: “Each company has their best practices…so it’s now time to cross-pollinate those best practices across the organization. For instance, in mobile applications, lead generation, integrated technologies and new revenue [opportunities]. Those are the things we’re going to look at and make sure every [broker] in the group will have access to those…and to the best practices that are already in place.”

On the purchase price

  • Luc: “…it’s in line with the transactions that involved another company last June [DLC]…The price that was paid to acquire 100% of the shares [of Invis] was in line with the market. Let’s put it that way.”

On plans to better equip brokers

  • Michael: “We, as an organization, need to arm our brokers with the opportunity to be able to deliver a service the way the consumers want it delivered. So if somebody wants to go online, we have to arm our brokers so that they can be in that space. If our brokers want to get business from referrals from realtors, we want to help them do that. If our brokers want to develop their local marketplace and create a brand, we want to help them do that.”
  • Luc: “…we’re deploying a new revenue strategy based on the success Cam and his team have had throughout the years…a new…approach when it comes to distributing the insurance product.”

On future opportunities

  • Luc: “Our objective is to double the size of this organization, so now we’re roughly at $22 billion (in volume). We would love to reach the $40 billion mark in probably three, four years… but 50% of this growth would come from other acquisitions and 50% would be from organic growth.”



Based on CMHC’s debt ratio distribution, up to 15-20% of high-ratio buyers may no longer qualify for the same home they could buy yesterday. Maybe more. That’s because today’s new mortgage qualifying rate (MQR) policy could push them above the 39% GDS limit.

Many young buyers will now be riding pine until they scrape together a bigger down payment, get a raise, settle for up to an ~18% cheaper home or find a co-buyer.

Thankfully, the feds did add one key exception for buyers who already have a firm purchase agreement, dated Oct. 16 or before. That would theoretically exempt folks, for example, who bought on pre-sale and won’t close for a few years. Unfortunately, lots of lenders will still enforce the MQR when these people go to apply, thus limiting their options. Nevertheless, this attempted foresight gives federal regulators at least 20 IQ points on B.C. politicians, who recklessly applied B.C’s 15% foreign buyers’ tax retroactively.


Low-Ratio Implementation Date Pushed Back

The Department of Finance (DoF) says it won’t enforce the MQR on low-ratio insured mortgages until Nov. 30. Its original proclamation said Oct. 17. More on that.

Mortgage finance companies now have another six weeks to find balance sheet buyers for their low-ratio refis, rentals, jumbos and long-am mortgages. We’re hearing that most of the big boys have found funding backups for these loans, albeit at material rate premiums for deals closing on or after Nov. 30. These rate surcharges will make MFCs more prone to undercutting from deposit-taking lenders, and set back mortgage competition by 5-10 years.


Time for Higher Covered Bond Limits

With policy-makers’ unilaterally deciding to pare back government’s role in mortgage-backed securities, perhaps it’s time to rethink covered bond limits. The DoF is still talking a big game about maintaining mortgage “competition” (in some parallel universe). But on earth, the reality is that there’s no liquid market to sell uninsured mortgages at competitive economics, except the covered bond market.

Unfortunately CBs are accessible mainly to banks, and CBs can’t comprise more than 4% of their assets. But foreign investors have been eating up covereds at near 0% coupons. Since the DoF is now heaving billions worth of low-ratio mortgages onto banks’ balance sheets, the least they could do is give banks more leeway to sell these uninsured NON-TAXPAYER-BACKED mortgages to willing investors (I wonder if we emphasized these words enough for housing critics. Thinkin’ I might need a bigger font…).


Keep calm and carry on

You’ve probably lost count of how many times you’ve heard that stale motivator after last week’s mortgage rule travesty. 

Brokerage heads are busy reassuring their agents, investors and lender partners that we brokers will persevere and get past this. Well of course we will.

But wouldn’t it be nice if broker leaders spent as much time publicly decrying these rules as they did publicly comforting themselves?

The truth is, we as an industry just got unapologetically shafted by a handful of anonymous policy-makers—policy-makers who sit insulated from the backlash and consumer repercussions in their cozy government office towers. 

There is absolutely nothing to be ‘calm’ about when:

  • broker lenders are forced to hike rates 15-25 bps and ditch products because of a bureaucrat’s stroke of the pen;
  • a world-class lender like First National has its market value hammered six days in row;
  • hard-working qualified Canadian families are told to pay enormously higher interest because—virtually overnight—they’re told they can no longer qualify for a refinance.

We brokers depend on product access. “What could be more damaging to the rank and file mortgage broker than telling their clients that 30-year amortization without a surcharge is only available from a bank?” asks broker Ron Butler. “…Why wouldn’t many consumers just go to the bank?”

Without choice and competitive rates, we’re just another mortgage seller pushing advice and service. Our industry cannot—and will not—grow on advice and service alone.

And the hits just keep coming. We get the next dagger in Q1 when bulk insurance premiums at least double, which will make broker lenders even less competitive. And the grand finale could come next year if/when regulators propose a deductible on insurance claims. Depending on how that’s implemented, some lenders may not survive it.

Keeping calm is not the answer. All that does is show regulators that we’re willing to take whatever rancid medicine they spoon down our throats. It makes them think they can restrict mortgage lending overnight, with virtually no consultation from consumer advocates or people who actually know how mortgage finance works.

Don’t just sit by calmly and tolerate bad policy that threatens your livelihood. Stand up for the tens of millions of Canadians who need mortgages and cost effective refinances. Stand up for the choice and cost savings we deliver as brokers. Tell the media how bureaucrats on the public payroll have unilaterally decided that well-qualified homeowners should pay more to renegotiate their debt—and have fewer options for managing their limited cashflow, despite absolutely no default data to support these moves. (And no, this doesn’t refer to overleveraged borrowers. Those folks should be curtailed.)
Write about this on your blogs, write to the Finance Minister, sign this petition, copy @FinanceCanada on social media, volunteer for association policy committees, tell your MP and tell your broker network’s leadership.

None of this is about broker self-interest. It’s about saving Canadian families literally tens of thousands in interest over their lifetimes, with no material increase in housing risk. It’s about standing up for government sponsorship of the mortgage industry, which has kept defaults low for decades, added billions to government revenue and fostered vital competition in a market dominated by six lenders.

Carry on, yes, but don’t keep calm.

This editorial solely reflects the author’s opinions and not those of this publication’s parent.


Disaster recovery plan FBRandom thoughts on this week’s mortgage rule madness…

Who’s Left Standing in December

It’s unclear which insured-lenders will still do refinances, rentals, super-jumbos ($1 million+) and 26- to 35-year amortizations come December. As we’ve seen, some lenders have already announced their (hopefully temporary) withdrawal from these categories. Lenders I spoke with today were scurrying to arrange purchase agreements with balance sheet lenders to create liquidity for these mortgages. It’s going to be a week or two before we know the bank’s appetite. They won’t rush to load up their balance sheets with non-standard mortgages. That, we know.


The Demand Effect

Will Dunning, chief economist at Mortgage Professionals Canada, tells BNN, wait until December’s CREA housing data is in before speculating on how the DoF’s rules will sway home prices. That interview.


Market Reaction T + 2

It’s 2/365ths A.D. (After Debacle), and investors have spoken again. For a second day they dumped stock in insurance-dependent lenders. In the process, untold millions in market value were obliterated.

These are ultra-high-quality lenders, managed by good, honest people, underwriting rock-solid low-arrears mortgages and saving Canadians billions (literally). They don’t deserve this in any way.

Lender stocks II

Most banks are outperforming the market.

Bank stocks II

Time for Perspective

As bad as these changes were for consumers and lenders, we all know that Canadian lenders are run by extremely resourceful people. Some lenders may die off or consolidate if the Department of Finance doesn’t relent on its decree, but many will find a way to keep doing these uninsurable deals at higher interest rates.

I had a chat with Gary Mauris tonight, head of Canada’s largest broker network. Here was his take:

I’d like to suggest and encourage all industry participants to exercise patience until we have clear, accurate information and the industry has done a thorough evaluation of the material impact. We as an industry have gone through numerous policy changes in the past, and have weathered the global credit crisis. These regulatory changes will no doubt be disruptive in the short term, but our industry is resilient and we will adapt and continue the valuable service that we provide Canadians. It’s important that we continue to focus on all the positives of our industry and avoid getting caught up in the negative rhetoric that only draws attention and damages the good work and many advances that this industry has achieved. Anytime there are headwinds in an industry, there are also opportunities. Now is the time to highlight our expertise, help the public navigate the changes and be financial thought leaders during this time of temporary uncertainty.



Sledgehammer FBThe Feds clearly wanted to crack the housing market, and they may have finally done it, with a sledgehammer.

New Department of Finance (DoF) rules will hit the mortgage market hard, but consumers will take the brunt of the blow. The two big changes:

1) Effective Oct. 17, the qualification rate will now apply to all high-ratio insured mortgages, even 5-year fixed terms. On Nov. 30 it applies to insured low-LTV mortgages as well.

2) Regulators are banning a wide array of mortgages from being insured, effective Nov. 30.

One big non-bank lender didn’t mince words when describing today’s DoF’s announcement. “This is a crisis,” the executive told CMT. The lender estimates that up to 40% of its insured volume could vaporize near-term because of these rules. Even if it’s half that among non-banks industry-wide, this appears to be a devastating blow to mortgage competition in Canada.

Background: Non-bank lenders rely on default insurance because it (in the DoF’s words) “supports lender access to mortgage funding through government-sponsored securitization programs.” Banks don’t depend on insurance to the same extent (at least not on conventional mortgages) because they don’t have to sell their loans to investors.

You’d think that with such a drastic policy change that stakeholders would be thoroughly consulted. Nope. Lenders I spoke with had not even a hint this was coming.

So what happens now? Here are our top 10 predictions:

    1. Housing prices will tumble as a sizable minority of first-time buyers and those with higher GDS/TDS ratios no longer qualify for the mortgage amount they want.
      • Forcing all insured borrowers to prove they can afford a payment at the posted rate (4.64%) will remove up to 15-20% of buyers from the market, say lenders.  
      • “This will impact more than 50% of borrowers’ [mortgage] limits, among those who select 5-year fixed rates,” said Mortgage Planner Calum Ross. “As unpopular as this may be to say, however, I fundamentally believe this is the right move by regulators. The fact they allowed such a large disparity on the qualifying rate for such a long time was, in my opinion, not a prudent lending decision.”
      • Others argue that 5-year fixed borrowers with 10%+ down payments could have refinanced and re-amortized after five years anyhow (to reduce their payments and mitigate a 200+ bps rate increase). Mind you, a 200+ bps hike in the next five years would probably cause a recession, so it’s unlikely at best.)
    2. Non-deposit-taking lenders could be forced to sell a wide array of loans to balance sheet lenders at a premium. They’ll be forced to pass those funding cost hikes directly through to consumers. These include refinances, amortizations over 25 years, non-owner-occupied properties and mortgages over $1 million—all the stuff that can no longer be insured and securitized.
    3. Broker market share will fall.
      • It’s Christmas in October for the banks. Among other things, they’ll gain refinance, jumbo mortgage and rental business from the monolines.
      • That business boost will reduce their reliance on the broker market. In fact, don’t be surprised if a Big 6 bank exits the broker channel by this time next year.
    4. Mortgage availability will drop in high-valued regions like Vancouver and Toronto and rates will rise nationally.
      • This liquidity drop is partly because of the insurance prohibitions, and partly because of higher capital requirements for insurers. This latter measure was announced previously and is expected to take effect in Q1. Word on the street is that bulk insurance premiums (which average roughly 40+ bps now) could at least double.
      • As competitors raise rates, banks will likely take that opportunity to hike their own rates. And they’ll probably do it nationally because regional pricing presents internal challenges.
    5. Banks will also have to qualify conventional borrowers at the posted rate on all terms.
      • OSFI tells us, “…Our update to [Guideline] B-20 is going to reflect the announcement made by the Department of Finance today about [the] “Mortgage rate stress test…” But it adds, “We are still reviewing the guideline, and have not yet made decisions in this regard.”
      • That suggests monolines could potentially be at a disadvantage for a while, unless OSFI encourages banks to adopt a standard 5-year posted qualifying rate sooner.
    6. Market share for near-prime lenders will rise yet again, especially for refinances.
      • Consumers, of course, will pay significantly higher interest for these lenders’ flexibilities.
    7. There will be a mad dash to refinance under the old rules prior to October 17th, when the new qualification rate comes into force.
      • Expect most lenders to stop taking such deals by mid-next week.
    8. We’ll start hearing more economists forecast a Bank of Canada rate cut due to the GDP hit from these rules.
      • Two big pillars of Canada’s growth, oil and housing are now on the ropes.
      • As we’ve written before, this is probably the worst time to send a message to foreign investors that they’re not welcome in Canada’s housing market. Canada needs their investment and most politicians and policy-makers appear shockingly blind to this.)
    9. Non-balance sheet lenders could apply rate premiums to amortizations over 25 years since they can no longer be insured. That’s no small point. Mortgages with amortizations longer than 25 years accounted for over half of all portfolio insurance underwritten by CMHC through June.
    10. Morneau

      Finance Minister Bill Morneau

      MBS yields will fall as supply drops and pool risk improves (more on that from Bloomberg). Yay, some good news in all this.

In the long run, the DoF’s move adds housing stability (at what cost is the question). But most of the 70% of existing homeowners who value their equity may well curse regulators in the short run.

The sad part is that borrowers in the majority of the country are clearly paying a price for Vancouver and Toronto’s excesses. “What I find most frustrating is that this change penalizes the wrong segments of the market,” said Tyler Hildebrand, a mortgage planner at One St. Mortgage. “Housing policy continues to be set on a national basis without any consideration for regional implications. Real estate is a local business; it should be regulated on a regional basis.”

Of course, the government also announced it’ll prevent non-residents from claiming the capital gains exemption—which is primarily targeted at Vancouver and Toronto. (This is a reasonable move. Here are more details on it). But this measure was a distraction from the other rule changes, and trivial by comparison. Non-resident buyers who buy to flip tax-free are simply not a major price driver nationwide. 

All of this adds to the layers of mortgage regulations imposed since 2008. And, to make matters worse for the lending industry, the Department of Finance has reaffirmed its decision to evaluate lender risk sharing. Charging lenders deductibles on default insurance claims could be an utter disaster for less capitalized non-bank lenders (and hence mortgage competition and consumers), depending on how it’s implemented.

With mortgage tightening finally starting to impact high-valued markets, this new round of rules has come too late, with too little forethought and too many consumer repercussions. It’s effects are so wide-reaching, so sudden, that something has me thinking it’s a conspiracy against non-bank lenders.

But no. I trust Canada’s regulatory system much more than that…I think.


Conference4 FBHere’s the second instalment of CMT’s coverage of the 17th Annual Scotiabank Financials Summit (see Part I). In it, Canada’s banking leaders expound on everything from mortgage risk to regulation to housing affordability.

Their most notable quotes are sorted by category below.

Key commentary appears in blue with our thoughts in italics.

On mortgage lending risk / impairment

David McKay, President and Chief Executive Officer of RBC

  • In response to a question about why RBC’s impairments are higher than its peers: “…we have got significant revenue coverage of the risk position we are taking. And while our cumulative losses are higher than maybe our peers are, we make on average $300 million more a quarter in the capital markets business than our peers, which is a billion and two over a year, and we have lost I think $150 million more…So yes, our higher loss rates is only $150 million more than our peers on average but we have made a billion more – that is pretty good coverage.”

Victor Dodig, President and Chief Executive Officer at CIBC

  • “…A shift has been happening from the insured to the uninsured at CIBC, partly driven by secular trends. I mean, CIBC is just not doing as much of it as it used to. We look at those mortgages and the larger ones, particularly on the West Coast, are manually adjudicated. We comb through them in quite a detailed fashion. We look at the client base that we are bringing in, not only in terms of the mortgage that they are taking out, but what other business are they bringing in. And some of the non-conforming mortgages, where you have larger homes being purchased, we see a correlation between deposits and investments come into Canada. The fact of the matter is people are resettling here and we are investing in our business and benefiting from that growth.”
    (As Dodig suggests, the percentage of uninsured mortgages has been rising industry-wide. The problem is, uninsured liquidity hasn’t been rising in parallel. The government’s talked a big game in the past about fostering lender competition, and one might argue that it’s not a priority anymore given Canada’s housing imbalances. But those capital, insurance and securitization restrictions should have created a level playing field, and they haven’t. Funding costs have risen disproportionately for smaller lenders that drive consumer savings, and that’s been a major failing of post-crisis policy.)


Scotia on government regulations and mortgage growth:

Brian Porter, President and CEO of Scotiabank

  • “…In the past we have been very supportive of the changes that Ottawa has made to the Canadian housing market—generally post-crisis to today, whether it is down payments, whether it is adjusting amortizations, those type of things.”
  • “If you look at our mortgage growth this year, because we were concerned about the market being maybe a little heady in Vancouver, maybe a little heady in the GTA, if you look at our mortgage growth this year it has been 2.7%.” (i.e., below its peers).
  • “If you look at our mortgage book we have got the highest amount of insured [mortgages] at 59%. We have got the lowest LTV on the uninsured portfolio, and if you look at our tail risk of higher LTV mortgages it has been turning down over the last two years, and that is by design.”


From the panel discussion on housing affordability across Canada

Stuart Levings, President and CEO of Genworth Canada

  • “I think the obvious statement is that we’re seeing increasingly a trifurcated housing market with Vancouver/Toronto absolutely running away, with Calgary/Edmonton showing some weakness and the rest of Canada basically just plodding along very, very flat. The Vancouver/Toronto markets are obviously gaining a lot of attention, for a good reason. Affordability is at crisis levels in those cities. Obviously Vancouver has chosen to do something about it now more recently…It does appear to be having somewhat of the desired impact as far as slowing down some of that activity and softening some of the prices at a higher end in particular. Toronto may well become the Vancouver of Canada if nothing else is done here, and if some of that foreign capital comes to this city we all think very strong numbers could come out of Toronto.”
  • “For me, the biggest takeaway is: let’s pause and let some of the measures that are currently in place or recently implemented or about to be implemented in terms of new capital requirements from OSFI take effect, because there are a lot of indicators that…suggest that things are already slowing. I mean, eventually the levels of house price appreciation we’ve seen are not sustainable. Affordability becomes a constraint unless you’re an unlevered wealthy buyer, not buying with any debt. Outside of that, which is the majority of buying, there is some point where you cannot debt service anymore and people will also deem it as no longer a good investment…So I think there are already some really obvious breaks on the demand factors that need to fully play out and need to be fully…measured in terms of the effect in the market before additional intervention.”
    (Some refreshing common sense there from an industry leader. A slew of rules have been thrown at the mortgage market in recent years. The potential exists that material government mortgage tightening from this point on—until we reach the next housing trough or plateau—could dangerously reinforce the down cycle. With 40% of Canada’s growth linked to housing as of late, pro-cyclical policy—assuming we’re entering a contractionary phase of the cycle—boosts odds of a hard landing and its accompanying economic consequences. As long as median home prices in high-risk cities stay below their peak, regulatory patience may be the most prudent play…for now.)

Stephen Smith, Chairman and CEO of First National Financial Corporation

  • “If there was anything at all that the government could possibly do, it would probably be reverse the changes made four to five years ago where the maximum loan-to-value would be 80%. They could certainly scale that back down to 75% or maybe even 70%. It would take some of the liquidity away from the marketplace. But generally we’re really dealing with issues that are predictably in Toronto and in Vancouver. And then we have the issues in other markets, which really aren’t crying out for any type of solution. So I think, to a large extent, these things will be self-correcting.”

Martin Reid, President and CEO of Home Capital Group

  • “So a lot of the changes that had come into play in the last five years have really been around prudent lending and I would say that the lending that’s happening today is far more prudent than it was 5, 10 years ago. But what a lot of those changes didn’t address was the supply side. And aside from Vancouver, which is really directed at the demand side, I think you really want to be careful of unintended consequences. You know some of the regulatory changes, B20 for example, did shift a lot of business into the shadow banking sector. The unregulated space may help the regulated lenders but systemically [that] may not have been the most prudent thing to do, in that it’s increasing risk in an area where you don’t have a line of sight. So I think you really want to be careful of the types of changes you put into play and you really do need to address the supply side…That really is the tale of two cities, Toronto and Vancouver, where that needs to be addressed.”

John Webster, SVP & Head, Real Estate Secured Lending at Scotiabank

  • “A lot of the high-end purchases in Vancouver aren’t being financed by lenders and by us, but it does have a downstream effect on affordability. So that is the issue…We’ll have to see whether or not that measure has some impact [and] whether equal measure should be brought to bear in other markets.”
  • “One of the things that the industry has done that you may not be familiar with, we’ve always, with the exception of the 5-year term, been underwriting to…the Bank of Canada posted rate, which can be as high as 200 basis points higher than the effective contract rate. The only terms that doesn’t apply to is the 5-year+ category. Lenders have [suggested] to [the Department of] Finance and OSFI that we would be willing to undertake that [i.e., apply the posted rate to 5-year fixed terms], to give a little bit more interest rate cushion. But so far what I would say, witnessing the behaviour of our borrowers…Canadians do value home ownership and they are in as quick a hurry as possible to pay down their mortgage. So even if they take a longer amortization, then they’ll do bi-weekly payments and…we still have big pay downs every year…I would say that most of my competitors worry about the fact that the portfolio runs off too quickly, not the other phenomenon.”
    (The Feds have been seriously considering whether to make 5-year fixed borrowers qualify at the posted rate, which is 4.64% today. Compare that to current qualification rates, which can be 2.39% or lower. Any mortgage originator can tell you what a sizable impact this would have on approval rates.)

Story by Steve Huebl & Robert McLister



Canada’s banking chiefs gathered recently in Toronto for the 17th Annual Scotiabank Financials Summit. There, they shared their take on topics ranging from mortgage growth to regulation to advancements in mortgage technology. Some of it will put you to sleep, but there are lines below that are a must-read.

We’ve plucked out some of the most relevant mortgage tidbits and sorted them by category. Key quotes are in blue and our comments are in italics

On advancements in technology:

Brian Porter, President and Chief Executive Officer of Scotiabank

  • “In terms of technology–look, we are dead serious about this, we have recruited some very good people from outside the bank… So we are partnering with a lot of people in the FinTech space, we are doing a lot of things up in Tangerine and Tangerine is a full service bank now and we are making, I think, very good strides there.”
  • “…We do not want to be caught in a mode where we are reactive all the time. We want to be proactive…The mortgage application process [for example] – you only have to visit the branch once, not two or three times like you used to. So it is just focusing on the customer, being thoughtful about it, and focusing on the pain points.”

Bill Downe, Chief Executive Officer of the BMO Financial Group

  • “…We spent enough time thinking foundationally about how we were going to invest…New product introduction is much faster and much less expensive as a consequence of the foundational changes that we made.”
  • “So as an example, e-Signature was only just legalized in Canada in the last 90 days and we rolled [it] out almost immediately…Within less than three months [we created] the ability to open an account on a mobile device in less than seven minutes. That was enabled by two things. It was enabled by a change in legislation that recognizes we are going to a more digital world. But it was enabled more by the work that we did in 2011, ’12, ’13, and ’14 on the underlying foundation.”

David McKay, President and Chief Executive Officer of RBC

  • “…as far as Fintech goes I think there is a lot of investment. But what makes some of the Fintech traction difficult is that–[and] this is true of the Canadian industry–you have got a customer that is embedded in a multi-product relationship, particularly if you have got the core checking account as I have said off the top, which is so important. And that multi-product relationship is reinforced particularly in our franchise by reciprocity…you get free banking if you have a multi-product relationship…you get discounts on your mortgage…you get higher GIC rates…you get reward points on your credit card. So we are constantly…reinforcing that the more business you bring us the more you get in return and therefore decoupling a product into a Fintech competitor is expensive. And there is not a price point that you can hit that replaces the relationship value of having four or five products, which is why the cross-sell ratio is so important. We are the number one cross-sell bank in the country. So when I think about Fintech and what they have to do to be successful, they have to take apart a deeply embedded, multi-product, highly reciprocal relationship that is going to cost the customer money to do that.
    (The question mortgage brokers would ask is, will this “cost” to the customer be more than the savings that the customer enjoys by purchasing a la carte financial products outside their bank? By way of example, a 15 bps rate savings on a $250,000 mortgage and/or a $2,500 mortgage penalty savings—versus a Big 6 mortgage—quickly makes up for free banking.)

Louis Vachon, President and Chief Executive officer of the National Bank

  • “…in about 75% of the cases you can either deal in branch or with a mobile mortgage development manager, mobile sales force. If you have all your documents, we will scan your documents, get an approval within the same day and you don’t need to go ever again to see [a bank rep] to get approval. You get one meeting, one approval and straight-through processing. No one to our knowledge does that in the industry right now.”
  • “The last piece we’re looking to do now is to do that online. Now, you have to physically bring your documents so we can scan your documents. The next step will be to do it online and have the full straight-through processing. So in terms of cost and efficiency… we’re doing a lot of work now where digitization and automation is being deployed. So we still have room. We still see areas, low-lying fruits that we feel we can get to those costs. That’s why we’re still comfortable, very much comfortable with the $95-million run rate target for that three years that we’ve given in terms of cost reduction.”


On the housing market

David McKay, President and Chief Executive Officer of RBC

  • In response to a comment about RBC seemingly having taken its foot off the gas in residential real estate in Canada: “I would say it is not true because we have gained market share in residential mortgages…But we are starting from the highest base by a long shot. We are two times the size of many of our competitors. So we are still gaining market share in mortgages but not in Vancouver. So with this conscious choice we have made, which came out in the Analyst Call and our Quarterly Earnings Call, we certainly feel much more comfortable about Toronto given the diversity of the economy, the number of new immigrants coming in, the household formations, the manufacturers. I think it is a more stable market to invest in right now. So you are seeing some of our market share gains in Ontario, which is a very strong economy in Toronto but not in the western part of the marketplace, so I think that has been conscious.”
  • “…we have gained share on mortgages but it is not (in the) west and we are not over–we are under-indexed in Vancouver as you heard me say. We are about on average index in–it looks like in Alberta at 16% of our portfolio… I think banks are in that 14/15/16% range so we are roughly somewhere there. So I think that is the volume story and we can do a little bit better, but you have got to be careful right now.”

Victor Dodig, President and Chief Executive Officer at CIBC

  • “I think over the next period you will see more normalization as the first line effect kind of runs off. And as…various governments put in policies of their own to temper the growth of mortgages. I mean fundamentally a lot of policies can be introduced. I think the fundamental issue that is going on in the world today is money is mispriced–that is the biggest issue. And at some point I am hoping that there is some coordinated intervention around the world that will get interest rates back to a normalized level to get the world back in the fairway again. I mean that is a problem right now–savers are being punished, asset values are increasing largely because money is mispriced.”
    (Interesting comment. The price of money is set every second of every day by the free market, the $100-trillion global bond market, the most efficient price discovery mechanism the world has ever known. But somehow, money is mispriced? No. Interest rates reflect the cold realities of a disinflationary environment that resembles nothing in modern history.)
  • “So if you look at CIBC’s growth profile we have been growing mortgages, but if you look at the quality of those mortgages, regardless of whether they are insured or uninsured, [they are] high quality based on the Beacon Score, based on what clients are doing with us in addition to those mortgages…So I think we have been on a path of really, really balanced growth and as much as everybody wants to point out the mortgage issue—yes, house prices have gone up. Yes, they have gone up too much but is the root cause because we have been lending at the level we have or is the root cause more the level of interest rates in our country? And it is not just our country, it is around the world…”
  • Asked if CIBC has adjusted its origination criteria in certain parts of the country: “No. Listen, we are very thorough in how we do things. We have been very thorough after the financial crisis as a low-risk bank…as I said it is a slightly different course. You do not abandon your lower risk principles. They are embedded in how we do business.”


On mortgage portfolio growth

Victor Dodig, President and Chief Executive Officer at CIBC

  • “Banking is all about managing risks, but it is also the size of the risk that you take. If you look at the mortgage growth, which is often pointed out as ‘Wow, how come they are growing mortgages faster than everyone else?’ Maybe it is because we are competing in a better way than everyone else, maybe it is because we have invested in our business. And I say maybe but truly we have. If you look at our mobile advisor force we have the second-largest mobile advisor force in the country. If you look at it three or four years ago it was nowhere near that size.”
    (Other banks are watching CIBC’s above-average growth rate, post-broker. The haunting question in our industry is, will another bank follow in its footsteps?)

Paret Masroni, Group President and Chief Executive Officer of TD Bank Financial Group

  • In response to a comment about TD’s Q3 mortgage growth coming in well below its peers: “I think you know [that] growth numbers…sometimes [don’t]…tell the whole story. For TD we have sizable market share and you know, when year-over-year growth may seem a little different than from some of our competitors, I think it’s also important to notice what base you’re counting the growth from. And we feel happy with how we are growing our book…We’ve had a consistent underwriting stance for many years, especially the last four or five years now. But…the diligence around our underwriting has probably become more strict then we might have had, you know, a few years ago.”
  • “…so would we be more diligent in the type of appraisals we would demand or accept, would be more focused on income verification for example, would we track our exceptions to policy when we approve certain types of mortgages, and are we more diligent about it? So all those might have some implication on our rate of growth, but that’s been consistent over a few years and I wouldn’t want that to come across as TD…consciously pulling back to a great extent. I think you’d expect from TD to do the prudent thing and that’s what we’ve been doing when some of these [home] prices have gone up the way they have, and it’s not just in the last one year, it’s been over a few years.”
  • “… we haven’t stepped back from the market…. And that applies to all the markets that we are in.”

Louis Vachon, President and Chief Executive Officer of National Bank

  • In response to a comment about National Bank’s mortgage growth being strong in B.C. and Ontario, but dropping off in Quebec: “I think still in terms of retail lending, I think we compare well in terms of volume growth of our peers…I want to reassure everybody, we’re not disengaging ourselves from Quebec but I think what’s happening is we are making some choices in terms of channels. We’re still active in the third-party mortgage broker [market] but being a little bit more selective there, so there’s been some decisions made on the channels. And frankly… mortgage lending growth has been a lot higher in Ontario and B.C. versus Quebec so we’re just reacting to macro trends. In the Vancouver market the growth has been mostly in insured mortgages and we’re growing from an extremely slow, small base. So you know I’m not particularly concerned. I think we can sustain a bit of growth in B.C., I think we’ll be fine and still very much within our risk controls and risk parameters.”
  • In response to a question about third-party mortgages and how, if at all, the bank has adjusted its origination criteria: “Our view is more long-term strategic in a sense that we feel that in the relative near future that online origination of mortgages will be a fourth distribution segment. So right now there is in-branch, mobile sales force, third-party mortgage brokers and then a fourth distribution channel which is direct online, either through an aggregator or through a direct basis…The only piece that we’re missing is online origination of mortgages and we feel that we can be an early adopter in that particular space. And we feel that, over time, it’s going to be as attractive if not more attractive for us as a new origination channel than the traditional third-party broker’s market.
    (Remember this last sentence from Louis Vachon. National Bank is to be applauded for sizing up and attacking the online space. But at the same time, a chill should have just passed through the bones of every broker reading it.)

Story by Steve Huebl & Robert McLister



Canada’s banking regulator wants mortgage default insurers to put more money between themselves and taxpayers, especially for mortgages they insure in riskier cities.

The new rules, detailed today by OSFI, will force government-backed insurers to bolster their capital on mortgages in certain areas. Effective January 1, 2017, this could make mortgages more expensive for insurers and consumers alike.

“When house prices are high relative to borrower incomes, the new framework will require that more capital be set aside,” said Superintendent Jeremy Rudin. 

In a report today, BMO Capital Markets referred to these changes as “modestly tougher capital requirements.” It said that “through a phase-in mechanism” the new rules “essentially apply to new business only.”

You can bet your last basis point that insurers are already looking at ways to offset these new costs. Borrowers could be stuck with steeper premiums, higher interest rates and/or more rigid underwriting. That’s especially true if they have:

  • Lower credit scores
  • Higher loan-to-values
  • Longer amortizations.

I’m hearing insiders speculate that this could even lead to regional premium variations. So I asked OSFI if it’s possible that a borrower in Toronto might be asked to pay a higher insurance premium than a borrower in, say, London, Ontario. OSFI replied: “It is up to the institutions to determine how they will manage the new requirements.”

As of Q2, Toronto, Vancouver, Edmonton and Calgary would have exceeded OSFI’s valuation thresholds and forced insurers to cough up more capital on mortgages in those cities. OSFI is using census metropolitan areas (CMAs) to define the regional boundaries.

The following map shows Toronto’s CMA, for example. If regional variations came to reality, someone in Guelph, Barrie and Oshawa could pay smaller insurance premiums than borrowers in Toronto, Mississauga and Markham.

Toronto CMA. StatsCan

Genworth Canada, the country’s largest private insurer, is already setting expectations for higher premiums. In a statement today it said:

The Company expects that the capital required for certain loan-to-value categories may increase and this could lead to a corresponding increase in premium rates. In addition, for those regions that are impacted by the supplementary capital, premium rates could also increase.

CMHC reviews premiums annually. We wouldn’t be surprised if it announces higher premiums by the first few months in 2017 or before.

Even premiums on low-ratio mortgages may rise. That could be a problem for certain monoline lenders who depend on buying transactional insurance to fund (securitize) their mortgages. More expensive low-ratio premiums could put them at a further competitive disadvantage to big banks that don’t rely on low-ratio transactional insurance.

OSFI confirmed for us that, “The same calculation formulas will be used for all mortgages whether insured individually or as part of a portfolio.”

Rising premiums aren’t the only fallout here. It could also get incrementally tougher for some borrowers to get an insured mortgage. Insurers may now try even harder not to incur losses on mortgages that entail higher capital costs. That could mean marginally more declines and fewer guideline exceptions.

In some cases, however, insured mortgages might actually require less capital than today. OSFI says, “All else being equal, the capital requirement for mortgages associated with borrowers with better credit, and that pay their mortgages off quickly, will be lower. Also, under the new framework, mortgage insurers will no longer have to hold capital for mortgages that have been fully paid off.”

OSFI’s proposed changes are up for public comment until October 21.