CMHC mortgage insurance business continues to shrink in the third quarter, profits down
TORONTO Canada Mortgage and Housing Corp., the Crown corporation that controls about half of the mortgage default insurance market in the country, continues to shrink its business.
CMHC released its third quarter results Tuesday which show that as of Sept., 30, 2016, the Crown Corp.’s total insurance-in-force was $514 billion, down $9 billion from the previous quarter. The federal government, which backstops 100 per cent of CMHC’s insurance business, has a $600-billion limit on the Crown corporation.
“Despite some economic challenges in parts of the country, we continue to generate a positive return for all Canadians. What’s more, our portfolio remains strong as evidenced by the increasing equity borrowers have in their homes and the downward trend of our overall arrears rate,” said Wojo Zielonka, the chief financial officer of CMHC, in a release.
Steve Mennill, senior vice-president with CMHC, participated in a conference call Tuesday to discuss results. He said on the call that in 2016 the Crown corporation decided to adopt a different approach to allocate more of its resources to portfolio insurance with the goal of still declining the overall number for insurance-in-force.
Portfolio insurance, which comes with federal government backing, is purchased by banks for low ratio mortgages as a way to make it easier to securitize loans. High ratio loans, with less than a 20 per cent downpayment, must have mortgage default insurance with premiums paid by the consumer. Banks pay the premium for portfolio insurance.
Mennill said it remains a goal of CMHC to continue to decline its insurance-in-force number from the $600 billion allocated by government. The figure has been rapidly declining since hitting a record of $576 billion in 2012.
Rob McLister, the founder of ratespy.com, predicts insurance-in-force will soon dip below $500 billion for the first time since 2010 – a move that comes as outstanding mortgage debt has surged about 40 per cent in the same timeframe.
“The Department of Finance is systematically extracting government from the housing market. And consumers have no idea how much extra interest they’re going to pay because of it,” he says. “Yes, reducing government’s sponsorship of housing could lower home prices and yes, that could lead to smaller mortgages and less interest costs for new homeowners. But that over-hyped benefit won’t be permanent. Once the market adjusts, which might take two to four years or more, home prices will once again make new highs.”
For the period, CMHC reported net income of $331 million on revenue of $1.2 billion, down from net income of $380 million on revenue of $1.1 billion a year earlier.
Insurance claims increased by $81 million, up 152.8 per cent from the same quarter a year earlier. Those higher than expected claims were primarily related to high loan-to-value products in the oil producing regions and a large multi-unit residential claim that was settled in the third quarter, CMHC said.
During the third quarter, CMHC said it provided mortgage loan insurance for 127,991 units across the country, up 26.8 per cent from the same period a year earlier. It says the average equity for Canadian homeowners climbed to 34.8 per cent, up from 34.4 per cent in the previous quarter.
“Homebuyers with CMHC-insured mortgages have a strong ability to manage their debts as supported by an average credit score of 751 for transactional homeowner loans and an average gross debt service (GDS) ratio of 25.7 per cent for the three-months ended September 30, 2016,” CMHC said, in its release.
The Crown corp. also noted that as of Sept. 30, 2016, overall arrears are at 0.32 per cent, the same as the previous quarter. The total number of loans in arrears was 8,286
