For sale signs in front of homes in Calgary.TODD KOROL/The Globe and Mail
The Globe's Real Estate Beat offers news and analysis on the Canadian housing market from real estate reporter Tara Perkins. Read more on The Globe's housing page and follow Tara on Twitter @TaraPerkins.
Canada's largest banks, as a whole, have seen almost no growth in their insured mortgage portfolios recently, Macquarie Capital Markets analyst Asim Imran discovered.
He found this out by digging through some data that the banking regulator – the Office of the Superintendent of Financial Institutions – gathers.
The growth that banks have shown in their mortgage portfolios of late has come from a strong uptick in uninsured mortgages, he concluded. Chartered banks saw uninsured mortgages rise 13.5 per cent year over year in May (for the Big Six banks it was 12 per cent). Insured mortgages, in contrast, were down 0.8 per cent month over month, and up just 0.1 per cent year over year.
(Note: This data are for the banks' total mortgage portfolios – including mortgages that are maturing – not just sales of new mortgages.)
I ran this by some mortgage executives at the big banks, and the extent of this trend was news to them.
Mortgage insurance is mandatory in Canada when a federally-regulated lender sells a mortgage to someone who doesn't have a down payment of at least 20 per cent. The insurance pays the bank back if the borrower defaults. Banks can also buy portfolio, or bulk, insurance to insure swaths of mortgages that weren't previously insured.
Based on my discussions, there appears to be a few factors behind the stagnant growth in insured mortgages: (1) the biggest issue is that the federal government has cracked down on the banks' ability to buy bulk, or portfolio, insurance; (2) banks have become more cautious in their lending, and non-federally regulated lenders are increasingly gaining mortgage business that once would have gone to the banks; (3) consumers are saving up larger down payments.
Banks started buying a lot more portfolio insurance during the financial crisis, because insuring mortgages made it easier to package them into securities or bonds that the banks used to fund more mortgages. Once the crisis ended, banks continued to buy large amounts of portfolio insurance because doing so reduced the amount of capital that regulators required them to hold (because insuring the mortgages reduces the banks' risks).
In last year's federal budget, former finance minister Jim Flaherty restricted banks' ability to buy portfolio insurance to reduce their capital requirements, and put in place a plan to gradually limit the insurance of low-ratio mortgages (those with a down payment of more than 20 per cent) to only those that will be used in CMHC securitization programs.
CMHC has since raised the price of its portfolio insurance, and this year it rationed the amount that banks can buy to $360-million per lender. That is a reduction from the amounts that the country's largest banks historically bought, while it gives some smaller lenders more access to portfolio insurance. In total, CMHC will sell up to $9-billion worth of portfolio insurance this year, down from $11-billion last year.
Industry players say sales of insured mortgages have picked up in recent months. CMHC's biggest rival, Genworth Canada, recently said it wrote $5.4-billion worth of new insurance on high loan-to-value mortgages during the second quarter, up 13 per cent from a year earlier and up 75 per cent from the prior quarter, due to strength in the general housing market as well as market share gains.