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Mortgage Insurance Trends from Genworth

Genworth-FinancialIf you’re interested in the inner workings of the mortgage industry, you can find a load of trend insights in Genworth MI Canada’s earnings calls and quarterly reports.

We’ve gleaned most the good stuff from its latest Q2 reporting. So without further ado, here’s Genworth’s take…

On the new mortgage rules…

The company says recent government mortgage restrictions will result in a “smaller mortgage insurance market.” It expects that to cut its high-ratio business by 15-20%. That’s due largely to:

  • The elimination of high ratio refinances
  • The elimination of high-ratio 30-year amortizations, and
  • “More stringent qualifying criteria.”

A whopping 80-85% of the mortgages that Genworth insured prior to the rule changes had amortizations greater than 25 years. A big reason for this is that Genworth caters primarily to first-time buyers.

“The Company does not believe that (OSFI’s) Guideline B-20 will have a significant effect on its business.”

On bulk insurance…

amortizationGenworth’s bulk (a.k.a. portfolio) insurance business has exploded. During the second quarter it wrote $47 million (gross premiums written) in bulk insurance. That was 683% more than the $6 million it wrote a year earlier.

For this, it has CMHC to thank. CMHC pulled back on portfolio insurance early this year, leaving the door open to Genworth and Canada Guaranty.

Genworth says its bulk premiums are good quality business with a 54% average loan-to-value. Due to it being one of the only games in town, Genworth is pricing this business with fatter margins than the market has seen in the last few years.

Portfolio insurance is helping it “differentiate” itself and “chisel away” at the market share of CMHC, but it’s still careful to downplay this side of its operations. Genworth seems to want to stay under the radar with regulators and critics who are skeptical about bulk insurance.

Brian-Hurley-GenworthChairman and CEO Brian Hurley stresses that Genworth is still a “flow business.” He says gains in portfolio insurance won’t completely offset the lower volumes it expects in its flow business.

(Flow insurance is another name for regular old mortgage default insurance, the cost of which is typically paid for by the borrower. Flow differs from bulk insurance, which applies only to low-ratio mortgages. Lenders purchase bulk insurance on their own to gain capital relief, help with securitization and, to a lesser extent, reduce risk.)

In 2011, close to $100 billion of bulk insurance was sold industry-wide, says Hurley.

On its government-imposed insurance limit…

Genworth added $19 billion of insurance-in-force in Q2, three times normal according to one analyst. Its overall limit is $250 billion, which it shares with Canada Guaranty. As of year-end 2011, it had roughly $200 billion of insurance outstanding.

Genworth expects the private insurer limit to rise to $300 billion by the fourth quarter of this year.

In the meantime, Genworth says it has “plenty” of capacity to sell mortgage insurance through 2012. It says about 10% of the mortgages it insures run off (i.e., are paid out) annually. That helps it create new capacity each year.

On product innovation…

Hurley says government mortgage restrictions have reduced volumes in “riskier products,” like Alt-A and extended amortizations. In response to this, Genworth is looking at creative products that can help “the right profile” of first-time homebuyers into homes, despite reduced amortizations.

On Future Rule Changes

New-Mortgage-Rules (2)Genworth reminds us that Ottawa’s recently adopted mortgage rules may not be set in stone.

“As market conditions evolve, the Company anticipates that the Government of Canada will revisit these rules and make any necessary amendments deemed appropriate to ensure the long term stability of the housing market.”

Rob McLister, CMT