An Updated Look at Insured Mortgage Risk

We got a new profile of insured mortgage borrowers last Wednesday. It came from Genworth Canada’s Investor Day where the company briefed shareholders on the its current risk profile.

The nation’s second-largest default insurer says government changes have made its portfolio “much more resilient to any sort of housing correction or external shock,” and the facts that follow seem to back that up:

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  • Genworth says that back in 2007 the high-LTV market was 50% of new mortgages. That’s changed radically. Thanks to Ottawa’s mortgage tightening, the number has now dropped to just 1 in 4 originations (27%).
  • The average credit score of its insured applicants has risen over 20 points since 2007, from 716 to 737.

  • Just 6% of its high-ratio borrowers have credit scores less than 660 (Genworth defines these as “higher-risk borrowers”).
  • Genworth’s average gross debt service (GDS) ratio across Canada is just 24% (the maximum allowed on an insured mortgage is 39%).
    • In Vancouver, Genworth’s typical GDS is 28%, and in Toronto it’s 29%.
    • The amount of borrowers’ income going to service debts is at “all-time lows,” the company says.
    • “When you stress test [debt servicing] by 100 or 200 basis points, that will actually bring it up to the long-term average…Borrowers have some flexibility to withstand…a rising rate environment,” it adds.
  • 73% of borrowers chose 5-year fixed rates this year (in its 2013 portfolio, the number was above 80%, reflecting better variable-rate discounts and persistently low rates).

Toronto and Calgary are two cities Genworth is monitoring closely. In Toronto, Genworth is requiring full appraisals on all properties over $750,000 (as opposed to auto-valuations or drive-by appraisals). “We don’t want to be insuring the one that’s gone for $120,000 above list (price),” said Chief Risk Officer Craig Sweeney.

Genworth recently started monitoring Calgary as well. “Clearly, lower oil prices are going to impact the [Alberta] economy…and that’s going to flow through to the housing market,” he said.

Genworth doesn’t see an immediate impact, but Sweeney adds, “We’ve already been proactively making underwriting changes to reduce our exposure in Alberta.” (A company spokesperson says that essentially amounts to “more active monitoring” and increased vigilance while reviewing Alberta files, versus a tightening of its underwriting rules.)

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