Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.
Issue link: http://digital.canadawide.com/i/407986
MortgageBroker mbabc.ca fall 2014 | 19 defaultinsurance The NaTioNal housiNg acT requires federally regulated lenders to acquire mortgage default insurance when providing financing to a Canadian consumer purchasing a property when their down payment is less than 20%. Mortgage default insurance is commonly referred to as mortgage loan insurance or more simply, mortgage insurance. Mortgage insurance protects the lender in the event the borrower defaults on their mortgage payment. In my experience, being required has never been in harmony with being popular. at said, there are many important benefits of mortgage insurance for mortgage professionals to be aware of, particularly in their education and advice to Canadian mortgage consumers. Let's explore these benefits and also touch on other current hot topics in the mortgage insurance space in Canada. To shi thinking from required and perhaps not so popular, I would like to share one of the most positive descriptions of mortgage insurance providers I have heard. At the 2012 MBABC conference, Jared Dreyer, MBABC Past President, in a room filled with industry colleagues, referred to the insurers as 'partners.' I welcome you to share this view of mortgage default insurers as industry partners to the broker community. ey are all here to support you and your businesses. The insurance providers ere are three mortgage default insurers currently operating in Canada. ey are CMHC, a Crown corporation of the federal government; and two private insurers, Genworth Canada and Canada Guaranty. Choice and diversification are benefits of having multiple insurers operating in the Canadian marketplace. All are regulated by OSFI, and until recently product offerings and underwriting guidelines have been referred to as homogenous. According to a recent announcement by CMHC, which is not a result of changes implemented by the regulator, there will be more differentiators in the private insurer space moving forward; specifically product offerings for business-for- self borrowers and insurance for borrowers looking to purchase second homes in the high ratio insurance space. Without deeply exploring various product offerings here, I would encourage you to become familiar with the websites of all mortgage insurance providers for the most current products and guidelines. In British Columbia, and across the country, all three providers employ numerous representatives. ink of these representatives as your partners, particularly with respect to your high ratio mortgage offerings. ey are available to answer your questions and provide a service to you and your lender partners. Just as you have relationships with your lender business development managers, forge a business relationship with your insurer representatives. On average, I estimate insurer representatives review more than 100 mortgage applications a month. ey truly are experts in their field and can provide valuable insights. Better still, they are your partners and are there to help. Home ownership sooner with competitive interest rates Mortgage professionals continue to offer customers competitive interest rates, which remain at historical all-time lows, for both conventional and high ratio mortgages. Consider if mortgage loan insurance wasn't required or simply wasn't offered. Would lenders fund mortgages with less than 20% down payment? If so, would they be in a position to offer the same competitive rates above 80% loan-to-value? If this were a reality, a common position would be fewer lenders would offer high ratio mortgages, and if they did, interest rates would be set higher than for mortgages with 20% plus equity as a means of covering losses incurred by default. With these considerations, mortgage insurance offers choice in the Canadian marketplace and offers access to home ownership sooner, with competitive interest rates for Canadians. The adjudication process You submit a live high ratio mortgage application to your lender of choice. Sometimes, in as little as an hour or two – and typically within 24 to 48 hours – your lender underwriter reviews the application and submits it to one of the three mortgage insurers for their review. Auto risk adjudication models, inclusive of borrower and property risking, are available at all three insurers. is allows for a very quick decision, sometimes instantaneous in the case of an auto approval. Applications that are identified by the adjudication model as requiring further review are then transferred electronically to the insurer-underwriting queue. At this point, the insurer underwriter will review the application. Typical areas of review by the insurer underwriter include the convenantor's credit report(s), down payment source(s), net worth, other properties owned, affordability when considering all liabilities, as well as the subject property value and market. As part of the property value review all insurers have an internal automated valuation model ( AVM). e AVM values the property in relation to other similar properties in • There are three mortgage default insurers currently operating in Canada. Choice and diversification are benefits of having multiple insurers in the marketplace.