More on First National’s New Mortgage

Wednesday’s story about First National’s new self-insured mortgage drew a lot of interest.  It seems $1000 savings really perks people up.

The Toronto Star highlighted another advantage as well.  Borrowers can also save $550 in provincial sales tax (on the reduced insurance premium) per $250,000 mortgage.

These benefits will surely not go unnoticed by First National’s competitors.  In fact, this type of mortgage has the potential to someday change the entire structure of mortgage insurance in Canada.

Here’s the thing.  The mortgage arms of banks, credit unions, and insurance companies cannot self-insure due to OSFI regulations.  This gives dedicated mortgage companies, like GMAC Residential and First National, a distinct competitive advantage.  

Researcher Jim Day comments:  “If permitted to do so, the banks could [also] self insure their high ratio mortgages–for less than [what] CMHC and Genworth charge for mortgage insurance.

This begs some key questions.  Will larger banks and credit unions push for new regulations to let them self-insure?  Will CMHC, Genworth, and other insurers suffer as more lenders self-insure?  Should the federal government divest of CMHC while they can still get a good price?

This could shape up into a very interesting battle, one where the consumer is the ultimate winner!

 

Miscellaneous facts on First National’s customer base:

  • 1 in 1000 homeowners default on a First National mortgage.
  • 2.7 in 1000 default on the typical bank mortgage.
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