The Canada Mortgage and Housing Corporation needs to drop its mortgage default insurance premiums, says a former industry senior executive, citing the Crown corporation’s smaller percentage of risky clients after a year of tighter loan regulations.
Brian Bell, who before forming his own real estate brokerage was the vice-president of Canada Guaranty, is calling for a 15 per cent reduction in fees from CMHC, saying it will provide much-needed relief to struggling first-time home buyers.
“The risk has been lowered,” says Bell, president of iPro Realty Ltd. and operator of the website townhouses.ca. “The mortgage insurance industry has been so profitable and they haven’t done a review in…I can’t remember the last time they reviewed their rates.”
The Canadian government shortened the amortization period more than a year ago and, more recently, limited CMHC’s tax-payer backed mortgage insurance in an attempt to cool the hot housing market back in 2012.
It was at the CMHC where Bell cut his teeth on the mortgage default insurance industry. Those CMHC premiums can easily reach $13,000 on a $500,000 home. (continued.)
“They have room to do it,” Bell told the Financial Post. “Insurance is all about risk and losses. If you’ve changed your risk and underwriting criteria and made it tighter, you’ll have lower loan losses.”
Any consumer with a downpayment of less than 20 per cent and borrowing from a financial institution regulated by the Bank Act is required by law to get mortgage default insurance. CMHC controls about three quarters of the market with Genworth Financial and Canada Guaranty splitting the rest.
Bell points out the Crown corporation has averaged $1.1-billion annually in net income over the last five years. He estimates a 15 per cent reduction in fees would have amounted to $194-million for this year.
“I work with first-time home buyers every day and that’s the group that has been hurt,” Bell told reporters. “I’m putting my name and reputation on the line after being in the industry for so long. I’m not going to be getting any friendly emails (mortgage insurers).”