Genworth Update

Genworth-FinancialIt seems Genworth Financial Canada (the country’s biggest private mortgage default insurer) has been making good inroads with lenders lately.

For example:

  • Genworth just cemented a new partnership with Merix Financial, a popular non-bank lender. Among other things, Genworth is offering its Business For Self and non-owner-occupied rental products through Merix. (More on this rental product tomorrow…)
  • FirstLine is now using Genworth for things like stated income deals. FirstLine, a division of CIBC, had previously cut back on their Genworth usage when the credit crisis made privately-insured mortgages less attractive.
  • A high-level source at the company tells us that Genworth’s volumes are up notably in the last 12 months with major banks (like TD, BMO, and Scotiabank) and credit unions.

A source inside the company also says that Genworth’s delinquencies have been dropping noticeably thanks to a heightened focus on underwriting quality.

  1. What is the attraction to using genworth? They are only 90% backed by the canadian government. Is genworth providing some kind of kickback to the banks to compete with cmhc? Or is cmhc too strict in it’s deal making?
    Btw, have you seen the futures market for the Vancouver real estate market? Predicting a 50% chance for the teranet hpi to hit 123 before EOY 2013.
    I wonder what that would would do to delinquencies for MIC.

  2. CMHC have essentially placed themselves outside market demands. Their policy of less than 3 years registered business and more than 2 years in the industry for insuring on Stated Income is ludicrous! If more than 3 years in business then client has to ‘prove’ income. Why would BFS do that. Genworth is the opposite – more than 2 years BFS and Stated Income no problem. No surprise clients look to Genworth for insurance. The Government would have been better to just offer 80 or 85% max for BFS. Most BFS clients understand the need to put more cash in.

  3. Hi Annette, You’re right in that policy advantages (like GW’s 2-years+ BFS, 80% rental offset, and suite income treatment) are helping Genworth vis a vis CMHC. Given the competitive market perhaps CMHC will make a few changes of its own–that is, once memory of the credit crisis fades a bit and the economy firms up.
    Have a good weekend,
    Rob

  4. The article and posts are based on a short term view. The prevous posters appear to have a short term memory. For a moment lets take a step back and focus on the true mechanics of mortgage risk.
    Mortgage insurers and conventional lenders face the majority of default risk after one or two years of funding. I remember Genworth being VERY tight on their guidelines 18-24 months ago, so of course they are seeing their default rates go down.
    For me the true question is what Genworth’s Stated Income policy will look like in 2 years when they start to see data on default rates in the new Canadian economic reality.
    I think we will see Genworth move more towards CMHC’s rather than the other way around.

  5. Hi Marion,
    Thanks for the post. No doubt you’re right that Genworth’s default rates dropped partly because it pulled back from the market after the subprime debacle.
    Nonetheless, one must allow for the possibility that Genworth underwrites with more vigilance to offset the flexibilities noted above–at least it better. Genworth is a public company and shareholders key in very closely on insurance claims. Being public also makes Genworth an open book with analyst scrutiny. Furthermore, Genworth has greater pressure to prove its soundness to lenders, many of whom who were quick to reduce their business when times got tough in 08-09.
    Cheers,
    Rob

  6. In my opinion, Genworth plays only a political role as perceived competition to CMHC. If I was a lender, it would be a no brainer to me to run all my deals by CMHC first and then use Genworth as back up. If I’m only going to get 90% of my loan back from Genworth but CMHC will give me 95% back if my client defaults, I’d only use Genworth as my last resort to push a deal through. Comparing the underwriting criteria between CMHC and Genworth, there are only minute differences, so I can’t think of any reason why I wouldn’t first go to CMHC except if my client once defaulted on a CMHC insured mortgage. If I was on the board at Genworth and I was truly interested in competing with CMHC, I’d either match CMHC’s default insurance payout % or I’d try to find weaknesses to exploit in CMHC’s underwriting. Looking at Genworth’s underwriting criteria, they basically photocopied CMHC’s guidelines and really have nothing substantial that would help them obtain a higher market share than CMHC. They seem more content to compliment CMHC’s business to compete with it.

  7. Genworth has the edge on CMHC in a lot of ways.
    Genworth has more common sense guidelines for self-employed borrowers
    Genworth has much better rental guidelines
    Genworth is more reasonable on property values
    Some rate specials are only available with Genworth insurance
    The difference in government guarantees is way overblown in my opinion. It means nothing to clients and lenders know the chances of insolvancy are almost nil. If the biggest financial crsis in 50 years didn’t sink Genworth, probably nothing will.

  8. Common sense guidelines for self employed, better rental guidelines, more reasonable property values….. I can sum up your proclaimed positives in one word, Lenient!
    Is there anything that Genworth is more stringent about (aka stricter) than CMHC?

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