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Tuesday, August 30th, 2016

Ask a Vancouver Mortgage Broker for Latest Insurance Trends

Mortgage Insurance Trends

For those interested in how the mortgage industry works, you could always ask a Vancouver mortgage broker. Otherwise, you might want to check out the quarterly reports and earnings calls for Genworth MI Canada.

According to Genworth, new government restrictions will have an impact on the mortgage insurance market; the market will shrink. The company’s high-ratio business is expected to decrease by 15% to 20%.  High-ratio refinancing will be eliminated along with 30 year high-ratio amortizations.  The stringency of qualifying criteria for homebuyers is also evolving. All of these factors will contribute to a shrinkage in the size of the market.

Genworth’s operations are mainly focused on first-time buyers. For this reason, approximately 80 to 85% of the mortgages that Genworth had insured before the rule changes relate to amortizations of more than 25 years.

On another note, Genworth  does not expect that the new Guideline B–20 will have a large effect on its financial position. A Vancouver mortgage broker can assist you if you would like more information regarding new mortgage or insurance regulations.

Additionally, the business segment of Genworth that includes bulk insurance has grown substantially. In the 2nd quarter of 2012,  the segment underwrote approximately $47 million worth of bulk insurance. That equates to an increase of 683% when compared to the same quarter in the prior year.

A lot of this can be attributed to the actions (or lack thereof) of CMHC. Earlier this year, CMHC substantially reduced its presence in the bulk insurance market. This left a lot of room to be subsequently filled by both Canada Guaranty and Genworth.

According to Genworth, the bulk insurance segment of its business is also very high quality; it has an average loan-to-value of 54%. As there is little competition in this specific market, Genworth can perform in this segment and generate larger margins than what has been possible in prior years.

Bulk insurance,  also known as portfolio insurance is helping the company differentiate itself, while it slowly chips away at the market share of CMHC. Despite the segment being very profitable, Genworth doesn’t like to talk too much about this part of its operations.  Some  critics and regulators remain skeptical of portfolio insurance, and Genworth would like to stay out of their line of sight.

According to Brian Hurley,  the chairman and CEO of Genworth,  the company remains a “flow business”.   As per Hurley, the gains from portfolio insurance will still not make up for decreased volumes in its flow business.

While “flow” insurance might sound complicated, it’s really just plain-vanilla mortgage default insurance. The individual taking a mortgage generally pays for this along with their monthly mortgage payments; your Vancouver mortgage broker will assist you with this at the time you setup your mortgage.

Flow insurance is different from bulk insurance in that it only relates to low-ratio mortgages. During the year 2011, the bulk insurance market was worth approximately $100 billion, according to Hurley.

During the 2nd quarter of 2012, insurance–in–force for the company increased by $19 billion. According to an analyst, this is 3 times the normal amount. The limit for Genworth is $250 billion; Canada Guarantee also shares this limit. At the end of 2011, Genworth had approximately $200 billion in outstanding insurance issued.

The private insurer limit will likely increase to $300 billion before the 4th quarter of 2012, according to Genworth.

Genworth has  “plenty” of capacity for selling mortgage insurance in 2012.  Approximately 10% of the mortgages it has insured are paid out on a yearly basis, and this regularly creates capacity. This is according to Genworth anyways.

Higher-risk products have seen a decrease in numbers due to increased government regulations.  For this reason, Genworth  is now looking into creating innovative products that will assist first-time homebuyers of the “right profile”, so that they can get into homes despite the new regulations. Consult your Vancouver mortgage broker if you are not sure what type of product is right for you.

Genworth would also like to remind us that not all rules made by the government continue to be set in stone; market conditions change.  For this reason, it’s likely that the government will revisit the rules it has created and make any amendments deemed necessary in order to ensure the housing market maintains long-term stability.

 

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