Last year’s mortgage regulations shrank the overall high-ratio mortgage insurance market by about 15%, according to recent estimates from Genworth Canada.
Those rule changes also eliminated high-ratio refinances and contributed to a 15% drop in housing sales last quarter versus Q1 2012.
Genworth CEO Brian Hurley spoke today on BNN about the pulse of the market. Here are some of his insights of note (our comments in italics):
- As an insurer, “We make money by getting the risk right.” That means “We’ve got to get the properties right,” he told BNN.
(If one is to read into this, and if history is a guide, we can expect more scrutiny on appraisals and property types as the market slows. This is especially true in richly valued markets like the Greater Toronto Area and Vancouver.) 
“Our two factors that drive our business performance are delinquencies, driven by unemployment (a very high correlation), and the size of our claims…(as) driven by home price declines.”
(As a result, Hurley hinted that Genworth is now focusing more on employment quality in its underwriting.)- Genworth has been extra careful about insuring condos with a large investment component—typically those with small unit sizes.
- For the next few years “the mortgage market is going to be flat,” he predicted. It will be “a couple of years until we see [the mortgage market] back to the 5-6% growth rate.”
- Genworth is seeing 24-25% average gross debt ratios (GDS) for first-time buyers
(That may seem surprisingly low and well below the normal maximum of 32-39%. But CAAMP found that the average GDS of an insured fixed-rate borrower was 22.5% in 2010—the latest marketwide GDS data we know of.)
Other factoids from Genworth Canada’s recent earnings reports and conference call:
Genworth says it now controls about one-third of the mortgage insurance market.- Only about 60% of mortgage delinquencies actually require Genworth to pay a claim. The rest are “worked out” or otherwise resolved.
- Genworth’s principal balance of insured mortgages was approximately $150 billion at year-end 2012 and 2011. The company had previously estimated its 2011 insurance in force at $204 billion. That’s quite the botched estimate for an insurer that’s expected to know its exposure. At least it tried to be conservative by overestimating, versus underestimating. On a positive business note, this leaves it and Canada Guaranty with a combined $150 billion of insurance they can write (and still fit under the federal cap), versus CMHC’s $34 billion.
Rob McLister, CMT
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Last modified: April 26, 2017
The CAAMP estimate of 22.5% GDS in 2010 was for high-ratio mortgages, not market-wide. Furthermore, that was the actual GDS (based on actual contracted interest rates) rather than the qualifying GDS (based on benchmark rates for variable rate mortgages and fixed rate mortgages with terms less than 5 years). In the discussion of the Genworth 24-25% GDS, it isn’t clear if this is actual or qualifying GDS.
Hi Will,
Thanks for the post. Marketwide in this context was intended to mean “not limited to Genworth data.” But it’s better to clarify that your numbers are for insured borrowers, so I have. Albeit, insured mortgages include both high- and low-ratio mortgages per the description of your microfile. I also noted in your January 2011 report: “There is no guarantee that this dataset exactly represents the characteristics of all new mortgages, but it is highly likely that it provides a close approximation.” And as you aptly suggest, GDS should be lower for the entire borrower population.
As for qualifying rates, the story here quoted CAAMP’s fixed rate findings specifically. Those better match up to Genworth’s latest data, which is overwhelmingly based on fixed-rate mortgages (mostly 5-year terms). The industry normally qualifies 5-year terms at the contract rate. Genworth has told us in the past that it builds in a cushion when calculating its debt ratios for underwriting purposes. But even then, if it were basing this 24-25% on a significantly higher qualifying rate (for mostly 5yr fixed or longer mortgages) it would be pretty surprising. I’ll satisfy both our curiosity and ask them.
Cheers…