The Latest Self-Insured Mortgage

First National now offers a self-insured mortgage that shaves off 0.40% from mortgage default insurance premiums.  On a $250,000 mortgage with 5% down homeowners save about $1000 (not factoring in the interest rate). 

The product is designed specifically for high loan-to-value mortgages.  Most lenders require that high-ratio borrowers get insurance from 3rd-parties like CMHC or Genworth.  A high ratio mortgage is one with less than 20% down.

First National products are available only through mortgage brokers.

  1. Interesting. First National is not OSFI regulated (as most of the banks and trusts are), and
    therefore its high ratio (80%+ LTV) borrowers are not required to have mortgage insurance by law. But of course in order to securitize their mortgages, First National has to provide some guarantee to investors that the mortgages are safe (AAA). So they buy portfolio insurance or use some other technique on the mortgages they want to securitize, thus incurring costs. These are passed onto borrowers in the form of higher rates or fees. It seems that First National is just changing the way they choose to ding the borrower for the added risk of a high ratio mortgage. Instead of charging a higher rate or an ‘application fee’ they have now found a clever marketing strategy which highlights the advantage unregulated institutions have over the banks.
    If permitted to do so, the banks could self insure their high ratio mortgages, for less than CMHC / Genworth charge for mortgage insurance.
    The ‘self-insured’ mortgage seems to be a great way
    to charge high-ratio borrowers the same fees you were charging before and come out looking like the good guy vs. the banks.
    Melanie, am I missing something?
    James

  2. Interesting. First National is not OSFI regulated (as most of the banks and trusts are), and
    therefore its high ratio (80%+ LTV) borrowers are not required to have mortgage insurance by law. But of course in order to securitize their mortgages, First National has to provide some guarantee to investors that the mortgages are safe (AAA). So they buy portfolio insurance or use some other technique on the mortgages they want to securitize, thus incurring costs. These are passed onto borrowers in the form of higher rates or fees. It seems that First National is just changing the way they choose to ding the borrower for the added risk of a high ratio mortgage. Instead of charging a higher rate or an ‘application fee’ they have now found a clever marketing strategy which highlights the advantage unregulated institutions have over the banks.
    If permitted to do so, the banks could self insure their high ratio mortgages, for less than CMHC / Genworth charge for mortgage insurance.
    The ‘self-insured’ mortgage seems to be a great way
    to charge high-ratio borrowers the same fees you were charging before and come out looking like the good guy vs. the banks.
    Melanie, am I missing something?
    James

  3. Hey Jim,
    Thanks for the comment.
    First National is basically providing an alternative to mortgage default insurance, at a lower cost to the borrower.
    They are not charging any higher fees to offset these savings, as far as I can tell.
    Nonetheless, I’ll try to have First National reply here directly if I can–to give us all the undisputed facts.

  4. Hey Jim,
    Thanks for the comment.
    First National is basically providing an alternative to mortgage default insurance, at a lower cost to the borrower.
    They are not charging any higher fees to offset these savings, as far as I can tell.
    Nonetheless, I’ll try to have First National reply here directly if I can–to give us all the undisputed facts.

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