Mortgage insurer CMHC primes market for announcement
Canada Mortgage and Housing Corp., the Crown corporation that Finance Minister Jim Flaherty has been seeking to rein in, says it will be making an announcement later this week.
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The mortgage insurer, which appointed former investment banker Evan Siddall as its new chief executive officer at the start of the year, would not comment on the substance of the announcement. The Globe and Mail reported in December that there has been pressure on CMHC to raise its premiums, a move that could add to the cost of a home for some buyers. CMHC has not raised its premiums since the late 1990s, and actually lowered them between 2003 and 2005.
Mortgage insurance is mandatory in Canada for buyers whose down payment is less than 20 per cent. The insurance covers the lender, or bank, in case the homeowner defaults.
While premiums are technically paid by the lenders, the cost is passed along to borrowers. Premiums vary depending on the size of the down payment and are calculated as a percentage of the mortgage. The smaller the down payment, the higher the premium. For example, the standard premium is 1 per cent for a mortgage with a loan-to-value ratio of 80 per cent, and 2.75 per cent for a mortgage with a loan-to-value ratio of 95 per cent.
CMHC has two private-sector rivals: Genworth MI Canada Inc., and Canada Guaranty Mortgage Insurance Co. They tend to match CMHC’s prices because the Crown corporation is by far the biggest competitor. Industry sources say the private-sector players have been reluctant to raise prices on their own, for fear of losing business, but they have told the federal government that they would like to see CMHC raise its premiums.
The private-sector players argue that higher premiums are overdue because mortgage insurers have been required to bolster the amount of capital that they set aside in recent years, and flat prices coupled with higher capital requirements have put pressure on profit growth.
CMHC earned almost $1.28-billion in the first nine months of 2013.
Read more @ The Globe and Mail
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