Name: Robert McLister

Email: [email protected]

Biographical Info: Robert McLister is one of Canada’s best-known mortgage experts, a mortgage columnist for The Globe and Mail, editor of CanadianMortgageTrends.com (CMT) and founder of intelliMortgage Inc. and RateSpy.com. Robert created CMT in 2006. The publication now attracts 550,000+ annual readers, is a four-time Canadian Mortgage Awards recipient and has been named one of Canada’s best personal finance sites by the Globe & Mail. Prior to entering the mortgage world, Robert was an equities trader for eleven years and a finance graduate from the University of Michigan Business School. Robert appears regularly in the media for mortgage-related commentary (recent coverage: http://bit.ly/tUjp3Q). He can be followed on Twitter at @CdnMortgageNews


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For the first time in forever, D+H has a major threat to its mortgage software dominance.

Newton Connectivity Systems—the old Marlborough Stirling Canada, and a Dominion Lending Group company—is launching “Velocity.”

Velocity is a cloud-based desktop for mortgage brokers. In a nutshell, it lets brokers send applications to lenders, pull credit reports, store client documents securely, email conditions updates to applicants, route documents to lenders and send automated marketing emails and newsletters.

The platform launches March 1 and basic connectivity and deal submission is free to all brokers. A CRM add-on will sell later for $50 a month. The new front-end is built partly on Otto, technology that CEO Geoff Willis’s old firm brought to Newton. 

The biggest pain about the software’s predecessor (MorWeb) was that it didn’t connect to all lenders. But DLC President Gary Mauris says that prior holdouts (e.g., TD, Home Trust & CMLS) “are all fast tracking integration” and should be on the system in a matter of months—in some cases, year-end at the latest.

The other criticism, mainly from non-DLC Group brokers, is that they don’t trust DLC to not spy on their client data. We asked Willis about this point blank. He offered this assurance:

“The goal with Newton is to have it stand as its own company and we want to service the entire mortgage industry—not just DLC or a handful of other networks. It would be short sighted and morally—and perhaps legally—wrong for us to pass along identifying information to DLC or any other organization.

We are here to build long-lasting relationships with brokerages and lenders. So let me plainly say, Newton WILL NOT look at a user’s client information or use it in any way without the consent of that user.

The safe collection, transmission and permitted use of data is the key to effectively operating Newton, we take that obligation very seriously. In our terms of service found right on the Newton website now, there are restrictions with how we share client data both internally and externally. If a broker or brokerage is a Velocity user or a user of another third-party point-of-sale system, we will be making provisions in the future to remove that client data post completion, as you will have it in your database and our role of providing the connection bridge has been completed.”

“It is our intention to migrate all $38 billion [of DLC Group origination] over to Newton within the next 30 months,” says Mauris. (If that’s not a shot across D+H’s bow, we don’t know what is.)

D+H, not to be outdone, and probably not coincidentally, emailed this to the broker industry today:

“…D+H has made a strategic decision to strengthen its commitment to the mortgage business in Canada, which you’ll be hearing more about in the coming months. This commitment will be particularly relevant to individual mortgage broker professionals, especially as the digital transformation takes hold in our industry.”

The company goes on to say: “The lending experience of 2020, just 3 years on, will look drastically different than we know it today…”


Sidebar: Coming Newton enhancements include: calendar syncing, production statistics, reporting based on virtually any client data, automated rate sheets for Realtors and email click-tracking. In 2018, Newton plans to add automated NOA and bank statement retrieval (to verify income and down payment funds), Teranet Purview integration, a client portal for doc uploads, e-signatures and payroll.

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If you thought Parliament’s hearings on the new mortgage rules was boring, you missed last week’s exchange between MP Ron Liepert and CMHC head, Evan Siddall.

This 4-minute video captures the tension…

Never, to our recollection, has there been such animosity towards the regulatory 3-Amigos: CMHC, OSFI and the Department of Finance. The trio’s insurance policies have ravaged mortgage competition, jacked up borrowing costs and are destined to cost consumers billions (literally billions)…if they’re not overturned. 

With most industry professionals we speak to, there’s an almost palpable loss of respect for federal regulators. It’s unhealthy, it’s unnecessary and it could have all been avoided. 

How? By conferring with industry experts before decreeing their policies, and by preserving sacred competition in Canada’s oligopoly-dominated mortgage market. These two reasonable measures would not have prevented rulemakers from achieving their goal, mitigating consumer debt risk. 

In his testimony, Siddall acknowledged making recommendations to the Finance Minister. Those recommendations resulted in the withdrawal of vital insurance and securitization options for:

  1. refinances
  2. average-priced houses in Toronto and Vancouver
  3. rental properties
  4. amortizations over 25 years, and
  5. low-ratio mortgages qualified at the contract rate.

Had officials justified these specific edicts in their testimony (with relevant data), it might have disarmed their critics. Instead, government representatives unapologetically demonstrated how little they thought about the wake of destruction they’ve left for lenders and consumers.

What follows is a sampling of testimony from one who many consider to be Canada’s biggest promoter of the new rules, Evan Siddall.

*******

 

Siddall on why the mortgage industry was never consulted:

“…More often than not our advice and analysis is provided confidentially, given that housing finance policy decisions can affect the marketplace…Broad consultations are not always appropriate.”

Counterpoint:  Industry was consulted countless times before on pending regulation. Given the gravity of these particular rules, this time should not have been an exception. The fed’s defence seems to be that traders might have shorted lenders’ stocks if the government tipped its hand before announcing the rules. But banks are public companies and they were consulted, noted MP Dan Albas. Why did policy-makers find it appropriate to solicit feedback from banks (but virtually no other lenders) before decreeing the most devastating rule changes the non-bank industry has ever seen. With no one to counterbalance regulators’ proposals, the mortgage industry got rash bank-biased policy. Canadian families will now bear layers of new costs, for possibly years to come. (Side note: There’s no reason to blame banks for these rules but, relatively speaking, they do benefit from them.)

Siddall on the damage to mortgage competition:

“…The results of these policy changes were fully intended…We did expect lower levels of competition in certain areas as well as a modest increase in mortgage rates…In our judgment the mortgage insurance regime was providing undesirable stimulus in the marketplace so indeed we sought to remove distortion…”

Counterpoint:  So the government picked favourites. It chose to cripple non-banks instead of raising qualification standards on all lenders equally. Siddall supported these changes despite non-banks demonstrating 50% lower delinquency rates than banks, based on his (CMHC’s) own data. Non-banks, and the brokers they distribute through, have been a primary reason why consumers get bigger discounts on mortgages today than they did two decades ago. But now they’ve been marginalized and consumers will pay the price. By the way, regulators’ idea of “modest” rate increases is up to “50″ bps. That’s up to $6,800 of extra interest on a $300,000 mortgage, over just the first five years. That money could pay someone’s university tuition for a year, or cover a family’s child-care expenses, or pay a homeowner’s hydro bill for four years—all of which are better uses of a family’s hard-earned income than government-imposed interest costs.

Siddall on the government’s key concern:

“…Action, we thought, was…needed to address the level of household indebtedness in Canada…The Bank of Canada calls this factor the greatest vulnerability to our economic outlook”

Counterpoint:  No one can argue that surging consumer debt isn’t dangerous. It is. And the government is reasonable for wanting to take action. But Siddall and his cohorts didn’t just take action. They cut off a leg to treat a gangrenous toe. There were multiple alternative treatments they could have prescribed to keep fringe borrowers from O.D.-ing on debt. (Examples). And all of those methods would have left the patient—Canada’s world-class competitive mortgage market—intact. 

Part II will follow this week…


Sidebar: Here’s a link to all of the Finance Committee’s hearings on mortgage policy.

Commentaries reflect the views of the author and not necessarily the views of this publication’s parent.


 

 

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When it comes to the total mortgages arranged in Canada each year (by all lenders), definitive data isn’t easy to find. So we have to rely on estimates.

CIBC economist Benjamin Tal is one of the best estimators out there. And his latest figures suggest the market is a lot bigger than some in our business may think. 

The estimates we typically cite for annual residential mortgage originations range from about $210 to $250 billion. But that doesn’t include renewals.

By Tal’s calculations, the total of all residential mortgages negotiated or renegotiated in 2016 was $405 billion. This figure is a much truer indication of what the theoretical potential market is for mortgage lenders.

This data includes purchases, refinances and renewals of owner-occupied and residential investment properties (including 1- to 4-unit and 5+ unit residential properties).

Tal writes that the total number is up 5.5% over 2015. Canada’s “typical” home price rose 13% in the same timeframe, according to Royal LePage dataBut with insurers already citing a 15-20% drop in business since the mortgage rule changes, 2017 volumes won’t be as rosy.

 

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MPs are questioning why the Liberal government took liquidity out of the refinance market, and Dan Albas is one of the most vocal.

In the House of Commons yesterday, the Conservative MP charged the Department of Finance with “Increasing interest costs on refinanced mortgages.” This of course is a result of the Finance Minister’s ban on default insuring refinances. The move has decimated competition in the refi space, which Albas says “hurts middle-class Canadians.”

“Will the Liberals reverse this punitive and damaging change?” he questioned on his Facebook page today. Albas asked the equivalent in Parliament yesterday, to which the Parliamentary Secretary to the Minister of Finance responded but, “didn’t answer the question at all!” Albas charges. 

Here’s a video of that exchange…

Still Pressing The Liberals on Mortgage Interest Rates

Yesterday I asked why the Liberals took away CMHC insurance when Canadian families refinance their mortgage. The "Talking Point" in response – of course – didn't answer the question at all!Increasing interest costs on refinanced mortgages hurts middle class Canadians and it hurts affordability.Will the Liberals reverse this punitive and damaging change?

Posted by Dan Albas on Friday, February 10, 2017

This debate followed hours of testimony these past two weeks about the new mortgage rules. Those hearings were held by Parliament’s Finance Committee and included 38 expert witnesses.

In an opinion piece today that touched on the hearings, Albas said:

As the public servants involved in this area could not provide a coherent reason for this punitive [refinance] policy, a motion I put forward to have the Finance Minister appear directly before the Finance Committee was adopted thanks in part to some Liberal MPs voting in support.

It appears, however, the Finance Minister is sending others to talk for him (on Monday), namely:

  • Ginette Petitpas Taylor, Parliamentary Secretary to the Minister of Finance
  • Rob Stewart, Associate Deputy Minister, Department of Finance
  • Cynthia Leach, Chief, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance

CMHC head Evan Siddall will also speak at the same meeting. Siddall has been quoted by Bloomberg as saying lenders have “no skin in the game” and “misaligned” incentives, which he later called a misstatement on his part. So the mortgage industry will be watching for any new bombs he might drop on Monday.

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Are regulators oblivious to the consequence of their own mortgage policies? That’s what certain industry stakeholders and MPs suggested to Parliament’s Standing Committee on Finance this past week.

Well, observers can now decide for themselves, based on officials’ own comments—starting with those of OSFI Assistant Superintendent Carolyn Rogers.

Rogers testified last week. Below are a sampling of her statements, with commentary on each…

  • On the Destruction of Lending Competition: MP Dan Albas asked Rogers if the harm done to competition is a concern, stating, “We’re not just making life tougher for consumers, we’re also making the market less competitive.”
    .
    National Bank Financial (NBF) substantiated that concern in an unrelated report this week, stating: “…We believe increased portfolio insurance premiums could materially impair residential mortgage origination capabilities of mortgage finance companies (MFC)…Increased premiums shift both pricing power and market share control to balance sheet lenders like the Big Six Canadian Banks, highlighting that further downside risk could emerge for MFCs…We believe increased portfolio insurance premiums could materially impair MFCs’ ability to originate residential mortgages in the 65% to 80% LTV ratio range, which we estimate at 35% to 45% of (their) total residential mortgage origination, including insured and uninsured mortgages.”
    .
    Rogers, for her part, expressed no such concern. She responded to the MP’s question by acknowledging only that the government’s rules are having a “disproportionate impact” on bank challengers. Her testimony made little effort to elaborate on the serious “side effects” noted above. Nor did she make an attempt to help parliamentarians grasp the extent of those repercussions on consumers and lenders.
    .
  • On Refinancing: Rogers stated that the new rule landscape “doesn’t preclude any one lender from doing refinancing.” This was either a tacit admission that she/OSFI doesn’t understand lenders’ funding challenges, or refuses to acknowledge them in public. For as every mortgage professional in Canada knows, there are indeed lenders who have lost their ability to offer refinancing to their customers. Most can still do refinances but with a serious rate handicap versus the major banks. NBF estimates that MFC rates on 80% LTV purchases and renewals have had to rise up to 30 bps due to premium changes alone. We’re seeing 15-50 bps rate premiums on MFC refis. A 15-50 bps rate disadvantage cuts the knees out from most securitizing non-bank lenders, pushing volume into the arms of OSFI-regulated lenders. This is solely the result of a deliberate government agenda.
    .
  • One-sided Stress Tests: Rogers failed to elaborate on how her agency chose not to apply the new “stress test” to uninsured low-ratio mortgages. OSFI’s decision has created an enormous bank advantage over MFCs (which must apply the test to all mortgages, or incur much higher funding costs). OSFI could have coordinated with the Department of Finance to apply the same test to banks. This would seem logical given the Bank of Canada’s public warning that uninsured mortgage indebtedness (e.g., the ratio of uninsured borrowers with loan-to-income ratios over 450%) was rising to concerning levels. OSFI and/or the Department of Finance consciously chose not to subject banks to the same standard as insurers and (by extension) non-banks.
    .
  • On the Policy-maker’s Intentional Failure to Consult Non-bank Stakeholders: Albas said he was told by officials in October that the government chose to only consult with the likes of major banks, despite roughly 2 in 5 mortgages being originated by non-bank lenders. Rogers had no answer to why policy-makers failed to confer with industry experts before making such game-changing rules.
    .
  • On the Regional Aspect of OSFI’s Rules: Rogers stated that OSFI’s policies “are regionally neutral.” How this can be true when the new capital requirements specifically use location in their formula is anyone’s guess.
    .
  • On Higher Resulting Mortgage Rates: Rogers essentially disclaimed responsibility for hiking costs on consumers, saying “Pricing decisions belong to the lender. We (OSFI) don’t set prices. We set capital requirements. And if lenders and insurers choose to pass the capital requirements on to consumers in the form of higher prices, that’s a business decision and not a regulatory decision.” Meanwhile, considerably higher funding costs have ravaged certain MFCs’ businesses, with some lenders reporting a 30 to 50%+ drop in year-over-year volume. Why? Because they had no choice but to terminate products and jack up rates, thus harming consumer choice. OSFI and the Department of Finance knew this would result from their capital changes, or at least they should have.

Rogers’ testimony omitted the true impact that OSFI’s capital changes are having in the marketplace, contained statements that could be interpreted as misleading, and failed to provide any substantive evidence justifying her agency’s changes. She delivered this testimony snidely at times, at one point scoffingly commenting, “I might have guessed…that was the source…” after it was revealed that an MP’s concern was related to a worry from mortgage firm DLC.

This hearing will cast serious doubt on OSFI’s credibility and motives. For as CMHC CEO Evan Siddall has stated, the market consequences of the government’s actions were “fully intended.” The rule changes thus appear to have been purposely targeted and premeditated based on false (or at least questionable) pretenses.

Government officials said in their testimony that they want consumers and the industry to be resilient to future potential shocks. That’s a worthy and necessary goal. But, we all must remember that the prior system:

  • was a product of extensive prior rule tightening (over 30 new lending restrictions since 2008 alone)
  • held defaults on MFC’s insured mortgages to half that of the major banks (MFC arrears were a minuscule 14 bps, said the Bank of Canada in December)
  • limited prime mortgage arrears to a paltry 45 bps during one of the worst recessions on record
  • was mostly based on a level playing field among lenders, unlike today.

Despite all this, regulators once again failed to share any meaningful evidence that Canada’s prior time-tested regulatory system:

  • was immoderately risky
  • justified OSFI’s and the Department of Finance’s devastation of non-bank lenders
  • justified forcing hard-working Canadians to pay thousands more in interest.

In his questioning, MP Albas suggested policy-makers were “spinning” their position, to convince Canadians these rules are in their best interests, while simultaneously taking away critical financing options and raising costs on Canadian families. Rogers’ testimony did nothing to counter this charge. In fact, her statements demand legislators’ immediate scrutiny on her agency’s one-sided decisions, to confirm the unparalleled cost of those policies justify OSFI’s purported benefits.


Commentaries reflect the views of the author and not necessarily the views of this publication’s parent.

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Mortgage Professionals Canada has asked the Department of Finance for a moratorium on mortgage rule changes until the effects of the current changes are known.

Speaking before the Standing Committee on Finance this week, MPC CEO Paul Taylor spoke to the association’s key concerns about the new rules and its hope that certain aspects will be revisited.

“The recent changes are having a cumulative negative impact on the mortgage market and ultimately on the Canadian consumer,” MPC president and CEO Paul Taylor said. “We are asking for slight amendments to the portfolio insurance eligibility guidelines, and to wait for the remaining existing changes to make their way through the market before implementing any further changes.”

He touched on the disproportionate impact the portfolio insurance changes are having on non-traditional bank lenders, as well as the reduced purchasing power for young homeowners due to the more stringent stress testing of insured mortgages.

Taylor also told the committee how the new rules are negatively affecting the mortgage broker channel and hurting competition.

“Canadian consumers have been more and more inclined to use the services of a mortgage broker to provide choice, advocacy and support, and to assist in the technical requirements of mortgage qualification,” he said. “Placing competitive disadvantages [on] the non‐traditional bank lenders will adversely affect this segment of the Canadian mortgage marketplace…We therefore maintain that in light of decreased competition, increased financing costs, decreased purchasing power, and increased regional prices and access disparity, that the government suspend any further changes to the housing market it is considering.”

MPC’s Recommendations

The association made the following specific recommendations to the Standing Committee on Finance:

  1. Allow for refinanced mortgages to be included in portfolio insurance. “If an 80% loan‐to‐value ratio is unacceptable, please consider reducing the threshold to 75% rather than removing eligibility to these products entirely,” Taylor said. “This adjustment would alleviate some of the competitive disadvantage pressure the cumulative effect of these changes place on the non‐traditional bank lenders.”
  2. Reconsider the increased capital reserve requirements implemented on January 1, 2017, for insured mortgages, as they are making low-ratio insurance too costly for small‐ and mid‐sized lenders.
  3. Apply the stress test to all mortgages sold by all federally regulated lenders, not just insured mortgages.
  4. Uncouple the stress-test rate from the big five banks’ posted rates. Use an independent mechanism to determine the rate.
  5. Conduct a review of the long‐term impact of regional‐based pricing on the Canadian economy as a whole, and the potential additional harmful effects on already-strained regional economies.

The first three recommendations above would needfully re-level the playing field between major banks and Canada’s 400+ other lenders. It would put real choice back to hands of Canadians and meaningfully reduce borrowing costs for well-qualified borrowers. If the government deemed it necessary, these “fixes” to a now broken system could be re-instated with stricter qualification criteria, ensuring the government’s concerns (e.g., over-leverage) are addressed.

We’ll have more on the hearings to come, including surprising testimony from OSFI.

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People are increasingly open to purely automated banking and investment services. But Canadians also lag the world in robo-advice acceptance, finds a recent survey.

Accenture Financial Service’s 2017 consumer study reveals that 6 in 10 Canadians (59%) would use entirely computer-generated support for banking. The consulting firm attributes this to the growing need for “greater control over [our] service experience,” adding that “improved speed and convenience is the main reason consumers will turn to automated servicing.”

There are case studies of this throughout mortgage industries abroad; Quicken Loans is a perfect example down south. U.S. borrowers closed more than $6.5 billion worth of its “digital” Rocket Mortgage in 2016, despite Quicken not having rock bottom rates, nor emphasizing a “human touch.”

But if you believe the survey, most Canadians have no intention of ditching their mortgage advisors. A majority (61%) said it was important that specialists be available to offer mortgage advice in bank branches. Compared to the U.S. and U.K., however, Canada doesn’t have many digital mortgage options for folks to compare.

Any way you slice it, we’re behind the times with fintech adoption. As just one example, 14% of Canadian Gen Y respondents said they would consider banking, buying insurance or purchasing investment advice with an online provider like Amazon or Google. That was a whopping 26 points below the global average of 40%.


Sidebar: Accenture’s research segments financial services consumers into three groups:

  1. Nomads (23% of Canadian consumers): Described as “a highly digitally active group,” they are ready for and open to new models of delivery for financial services. Nomads are independent and not tied to a traditional provider (e.g., bank).
  2. Hunters (23%): Bargain hunting is their game. This group searches relentlessly for the best deal on pricing. Yet they still actively rely on human advisors.
  3. Quality Seekers (55%): This group considers quality first, especially when it comes to service, advice and data protection. 

More than 32,715 respondents took part in this survey from 18 different markets internationally.

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Manulife Bank has rolled out another balance sheet product in the broker channel: the Manulife One for investment properties. We’ll call it the “M1R” (M1 for rentals) for short.

It’s an important product that broadens choice for broker customers, as there are few other automatically readvanceable HELOCs for rental properties (Scotia STEP being its main competition in the broker space).

“We are very pleased to be expanding further our commitment to mortgage brokers across Canada and appreciate the confidence they are showing in partnering with us,” said Jeff Spencer, Manulife Bank’s VP, Retail Sales & Distribution. This is the second balance sheet product that the bank has launched in the broker market in the last month.

Here’s a quick rundown of M1R’s features:

  • Maximum LTV: 80% (75% for high-rise condos; note: any portion over 50% LTV must be in a non-readvancing 5-year fixed sub-account)
  • Maximum loan amount: $750,000
  • Rental treatment: Manulife allows Gross Rental Income x 50% for the net rental income (on the subject property or an owner-occupied rental; note: Manulife removes heat and property taxes from the debt ratios). On non-subject, non-owner-occupied properties, it allows gross rents less allowable operating expenses (actual expenses as noted on the T776)
  • Rate Hold: 120 days for purchases and 90 days for refinances (on the 5-year fixed portion)
  • Minimum credit score: 700 (primary applicant)
  • Rate: The LOC rate is prime + 0.70%

 

What’s to love:

  • The fact that Manulife has filled a key niche with a competitive new product that lets brokers better compete with big banks
  • The LOC is fully readvanceable. Clients can set up multiple readvanceable sub-accounts after closing (Tip: do it in the first 30 days to ensure you get the same rate on the LOC)
  • The 5-year fixed portion can be qualified on the contract rate (the LOC must be qualified using the BoC’s 5-year posted rate)
  • The LOC account is a bank account, and can be used to segregate and track expenses pertaining to the subject rental property
  • Broker compensation is notably higher than Scotia, and paid on the limit of the LOC

 

What could be improved:

  • The 5-year fixed rate is 15 bps higher than Scotia’s rental rate
  • Clients can’t have more than $1 million of rentals with Manulife (hopefully they look at raising this limit in the future, as it’s quite limiting to some clients)
  • The only term option for sub-accounts is the 5-year fixed
  • It’s not available in Quebec
  • It’s got M1’s $14 monthly fee. A lot of customers aren’t keen about it. But, on a positive note, the fee can potentially be written off (speak to your accountant) and includes unlimited e-banking, which is essentially a dedicated accounting solution for that rental property.

 

All in all, the M1R is a solid new rental financing option that should do decent volume in our channel. And if Manulife addresses a few of these wrinkles, its uptake will be all the greater.

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Canada’s mortgage rulemakers want less exposure to insured mortgages and—as this BMO Capital Markets graph shows—they’re getting exactly what they want.

                                     Source: Sohrab Movahedi, Analyst, BMO Capital Markets

 

Uninsured mortgages have been growing at two and a half times the pace of insured mortgages since the financial crisis.

But high-equity mortgages aren’t growing in that same way at CMHC. A quick check of its financials pegs the average loan-to-value of its insured mortgage portfolio at 52.5%. Five years ago, it stood at 55%.

But in that same timeframe, home prices surged 36%, as measured by CREA’s Home Price Index. By that measure alone, one would expect the loan-to-value of CMHC’s portfolio to have dropped more than 2.5 percentage points. But it didn’t.

One reason is because CMHC isn’t insuring as many low-ratios mortgages these days. Its bulk insurance in force has plunged almost $60 billion since 2011. Conversely, 96.5% of the homeowner insurance it sold in its last reported quarter was high ratio.

Thanks to insurance restrictions and premium hikes, CMHC’s portfolio will grow even more top-heavy with high-ratio mortgages in 2017. No longer will it benefit from the diversification of low-ratio mortgages in its revenue stream and portfolio, not to the same extent it once did. That has to worry someone out there.


Sidebar: Speaking of worries, we asked CMHC if it was “concerned” that its dramatic hikes in low-ratio premiums could hurt mortgage competition (since so many smaller lenders rely on low-ratio insurance for securitization and funding). A spokesperson replied, “…We are committed to continuing to offer competitive products to a wide variety of lenders”—to which we replied, that didn’t really answer the question. The spokesperson responded, “we have no further comment…” 

Hey, that’s understandable. It can be difficult to comment when your policies just set back competition by over a decade—in a $1.3+ trillion market.

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Homebuyers with less than 20% down are going to pay more.

CMHC is hiking mortgage insurance rates for the third time in three years. Premiums are jumping up to 0.65 percentage points on the highest LTV mortgages, effective March 17, 2017. Here’s the new premium table:

But high-ratio hikes aren’t the only story. Premiums on mortgages between 65.01 and 80% LTV are soaring too.

At 80% LTV, the premium is almost doubling to 2.40%. That will push up interest rates among lenders who currently pay this premium for their customers in order to securitize the mortgage.

CMHC had a conference call this morning about the increases. Here were some takeaways:

  • It says these premium hikes are due mainly to OSFI’s capital requirement changes, which took effect January 1.
  • OSFI’s new capital requirements include a formula based on LTV, credit score, location and other things. Oddly, this formula disproportionately targets (increases the costs for) mortgages in the conservative 65.01 to 80% LTV bracket.
  • Bulk insurance premiums have increased similar to the low-ratio transactional premiums, says CMHC.
  • The insurer says it has communicated bulk pricing criteria to lenders (although the securitizing lenders I’ve spoken with cite considerable obscurity in bulk pricing, which has led many of them to transactionally insure their mortgages instead).
  • Roughly two-thirds of CMHC’s business is in the 95% LTV category, said CMHC, and about 4% of its transactional insurance is used for low-ratio customers.

Steven Mennill, Senior Vice-President, Insurance, said that CMHC is “Not doing this to affect housing markets…” and doesn’t think it will have a significant effect on competition.

Mortgage finance companies would vehemently disagree. Higher premiums have already limited competition in the low-ratio market where MFCs must charge rates that are up to ¼ point higher on 80% LTV deals (compared to last fall).

Big banks, which don’t need to rely on insured mortgages for securitization purposes, now have more pricing power than ever—at least since the dawn of NHA-MBS. And no one should blame banks. They’re not writing these rules. But from a consumer standpoint, Joe Borrower is getting the shaft, which leads us to the legislated purpose of the National Housing Act:

“The purpose of this Act, in relation to financing for housing, is to promote housing affordability and choice, to facilitate access to, and competition and efficiency in the provision of, housing finance, to protect the availability of adequate funding for housing at low cost, and generally to contribute to the well-being of the housing sector in the national economy.” (emphasis ours)

The recent decisions by the Department of Finance, OSFI and CMHC appear to twist or flout these essential provisions of the National Housing Act.

Policymakers argue that such measures are warranted for the stability of the market. That’s a whole other debate, one that’s not well supported by any publicly available mortgage risk data (default rates, overall credit quality, equity levels, etc.).

Suffice it to say, Canada’s mortgage industry never required an unlevel competitive playing field to create stability. But that’s what these new premiums have now given us.