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CMHC Insurance at $576 Billion

CMHCCanada’s largest mortgage default insurer has $24 billion to go until it hits its $600 billion government-imposed insurance limit.

As of June 30, 2012, CMHC had $576 billion of insurance-in-force, one per cent higher than the prior quarter and two per cent higher year-over-year. That figure is the headline data point in CMHC’s just-released Q2 financials.

The interest in CMHC’s outstanding insurance stems from the fact that policymakers seem unwilling to increase its $600 billion limit. That means CMHC must live within defined parameters, forcing it to meter out less essential “bulk” insurance (which lenders use to help  securitize mortgages, reduce capital requirements, manage risk, reduce funding costs and offer more competitive rates).

Here’s more from today’s report and conference call:

  • CMHC says the new mortgage rules, which took effect July 9, will “reduce the high-ratio homeowner purchase market” and “effectively eliminate the high-ratio refinance market.”
  • First-time buyers account for the “vast majority” of CMHC’s high-ratio home purchases. (In our view, the new mortgage rules will disproportionately impact these buyers [our words not CMHC’s]).
  • Second-quarter insured unit volumes plummeted 23.5% year-over-year.
  • Q2 net income from mortgage insurance fell 25%, resulting partly from a $28 million (25%) increase in net claims expense.
  • Bulk (portfolio) insurance is down 40% in the first six months of this year, after CMHC started rationing it at the beginning of the year.
  • The increase in CMHC’s insurance in force is partly due to “certain lenders taking advantage of their full yearly allocated portfolio amounts in the first half of the year.”
  • CMHC expects $60-65 billion of mortgages to fall off its books each year, as those mortgages are paid down.

Borrower stats as of June 30, 2012:

  • 76% of CMHC-insured mortgages had a loan-to-value of 80% or less.
  • In its high-ratio business, more originations are done at 95% LTV than 90% LTV, suggested Chief Risk Officer Pierre Serré.
  • The average loan amount of a high-ratio borrower was $175,061, 14% higher than CMHC’s average bulk-insured mortgagor.
  • The average amortization at origination was 25 years.
  • Just 13% of high-ratio mortgages had a loan amount over $400,000.
  • The average credit score at origination was 725 for high-ratio borrowers and 754 for borrowers with 20% or more equity.
  • CMHC’s 0.35% arrears rate continues to track the industry average.

CMHC has a mandate to “enhance housing quality, affordability and choice in Canada and to ensure equitable access to low-cost housing finance for qualified Canadians in all parts of the country.”

Rob McLister, CMT