The lending rules have changed, and now it’s time for mortgage default insurance premiums to fall in line with new market conditions. This is the view of Brian Bell, former vice-president of private insurer Canada Guaranty, who is calling for a 15 per cent reduction in mortgage default insurance premiums.
“This is an opportunity to give first-time buyers a break and help those who are about to get on the ladder a step on it,” says Bell, now president of iPro Realty Ltd.
“This is not a game changer in the industry or will cause a boom, as some are suggesting, but simply help out those who are about to cross the line of buying. There are so many costs when buying for the first time. I think it would be good for the overall economy as it gives them extra spending power.”
By law, any consumer with a down payment of less than 20 per cent and borrowing from a financial institution regulated by the Bank Act must get mortgage default insurance. CMHC controls about three quarters of the market with Genworth Financial and Canada Guaranty splitting the rest.
While some argue that such a premium is required to manage the high level of risk in today’s market, Bell is arguing that the pot is big enough to cover any unexpected market drama.
“The insurance companies are more than capable of absorbing this cost. The Crown corporation has averaged $1.1 billion annually over the last five years,” he says.
The average equity in CMHC’s insured portfolio is 45 per cent and 79 per cent of borrowers with high ratio loans approved for insurance in 2012 have credit scores of 700 or greater . The arrears rate of 0.35 per cent in 2012 remains historically low and is expected to continue to decline according to CMHC.