There are three mortgage default insurers in Canada. CMHC is the biggest and it is 100% backed by the federal government. Genworth and AIG are #2 and #3 respectively, and are only 90% backed.
As a result of this difference in guarantees, a lot of lenders (and lenders’ investors) prefer CMHC, because the perceived risk is less. Genworth and AIG feel it’s time to level that playing field.
As the Globe reported this week, Genworth and AIG want the finance department to guarantee their mortgage insurance 100%, just like it does for Crown corporation CMHC.
Genworth and AIG say the risks to doing so are remote. Not only are their underwriting standards prudent (basically the same as CMHC’s), but they contribute to a guarantee fund and maintain reserves–as required by law–to offset any losses.
On the upside, a 100% guarantee for Genworth and AIG would mean more insurer competition, more new mortgage products, and lower insurance fees for Canadian homeowners. Default insurance is required for most borrowers with down payments under 20%.
We’ll see if Tuesday’s federal budget makes any mention of new insurance guarantees.
“Genworth and AIG say the risks to doing so are remote.” . . . So what’s the point anyway? Sounds like spin to me.
Triacitim – read the second paragraph of the post again.
Al R
This is a move that is desperately needed by the other two insurers to survive. Previous to any talk of a credit crunch in Canada, Genworth was fairly common and AIG still playing a distant third. However, I spoke to two HUGE lenders this week, that previously supported all three insurers,that are specifically NOT sending any new business to GE / AIG because they are not 100% backed, and in times of uncertainty and difficulty in securitizing new business, the lenders and their counterparts that securitize this business, can’t afford to not have that 100% guarantee. As the article says, competition is good, and despite having nearly identical underwriting standards, it’s nice to have options and they have come in handy with regards to placing business in the past. Kind of a mute point though if no lenders will use anyone other than CMHC.
Agree with John. Our in-house lender also used to have all three insurers. It was helpful since AIG and Genworth could potentially approve a deal that CMHC declined. Now CMHC is the only game in town, and that cannot possibly be good for Canadian homeowners.
As a taxpayer, why would I want my dollars securing 100% on default premiums for U.S based companies?
Genworth and AIG knew the rules of engagement before coming to insure in Canada, and still set up shop here, live with it!
All too often, we have been seeing otherwise credit worthy people having their mortgage applications declined, not by the lender, rather by CMHC. Unfortunately, when lenders are only using one insurer, it gives mortgage professionals (either a broker or a banker) only one chance at getting an approval. In the end, the consumer is the loser, as access to credit is severely restricted. This in my opinion is one of the biggest stories not picked up by mainstream media and brought to public attention.
because there is minimal risk and because Canadians are better off with choice and lower costs.
Nice of you to bring up the politicized fact that they are U.S., like that makes any difference whatsoever.
Regarding knowing beforehand, it was all good until the crisis hit. Now these company’s survival depends on a fair shake, and they are not getting one at the moment.
Getrealer:
because there is minimal risk and because Canadians are better off with choice and lower costs. WHAT LOWER COSTS ARE YOU SPEAKING OF, THAT HAS NEVER BEEN TABLED, AND HOW IS THE RISK MINIMAL?
Nice of you to bring up the politicized fact that they are U.S., like that makes any difference whatsoever. IT MAKES ALL THE SENSE IN THE WORLD, WHY PROP UP U.S. COMPANIES CANADIAN DIVISIONS?
Regarding knowing beforehand, it was all good until the crisis hit. Now these company’s survival depends on a fair shake, and they are not getting one at the moment.
LIKE I SAID THEY KNEW WHAT THEY WERE GETTING INTO WHEN THEY CAME TO CANADA!
If you come to play come with better points than that buddy.
Why not drop CMHC to 90% guarantee to even the playing field? Could it be that the competition would be too stiff? If it was a Canadian company asking for the same in the U.S. we would be up in arms. Level the playing field and let the game begin. Posted rate USED to be the rate you received until COMPETITION happened…..Duh!
So what is the suggested course of action for property owners that are insured with Genworth and AIG?
If you are already insured there is no need to act Yasmin.
Thank you!