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.