The mortgage-insurance industry has been hit hard by new rules introduced in 2016 to cool the rapid growth in housing markets and ensure people can afford their increasing mortgage debt.Mark Blinch
New mortgage-insurance rules announced in 2016 by the federal government are taking a toll on new-business growth at Canada's largest private-sector mortgage insurer.
Genworth MI Canada Inc., which provides mortgage insurance for home buyers and financial institutions, said the total value of new insurance it wrote in the second quarter of 2017 was down 81 per cent to $6.1-billion from $31.7-billion in the same period last year.
Most of the decline was the result of a 96-per-cent drop in the value of portfolio insurance written in the quarter, which is bulk insurance bought by financial institutions for their portfolios of uninsured mortgages. New portfolio insurance fell to $1.1-billion from $25.9-billion in the second quarter last year.
For subscribers: Canada's new housing risk: uninsured mortgages
The decline also included a 14-per-cent drop in the volume of insurance bought by homeowners, which fell to $5-billion from $5.8-billion in the same quarter last year.
Genworth is one of two private-sector companies providing mortgage insurance for homeowners who do not have a down payment of at least 20 per cent of the purchase price of a home, requiring them to pay for insurance to protect their banks from the risk of default on the loans. Canada Mortgage and Housing Corp., a federal Crown corporation, is the largest insurer in the sector.
The mortgage-insurance industry has been hit hard by new rules introduced in 2016 to cool the rapid growth in housing markets and ensure people can afford their increasing mortgage debt. Among the changes, the federal government increased "stress testing" standards for people taking out fixed-rate loans of five years or more, making it harder for buyers to qualify for insured mortgages.
The changes last year also made it far more difficult for financial institutions to buy bulk portfolio insurance to protect their portfolios of uninsured mortgages from default risk, virtually grinding the sale of portfolio insurance to a halt.
As a result of declining volumes, Genworth said income from premiums written in the second quarter fell 32 per cent to $170-million from $249-million last year.
Chief executive officer Stuart Levings said a recent slowdown in sales in the Toronto region is also affecting demand for new mortgages.
He said he believes the housing market in the Greater Toronto Area market will soften further in the next six to 12 months, but said it is too soon to be certain about the full impact of the Ontario government's package of rule changes announced in April, which included a new foreign-buyers tax in the Toronto area.
"There has been much change over the past 12 to 18 months and the impact continues to unfold," he told analysts in a conference call Wednesday. "From our perspective, we believe home buyers are adapting to the changes, and markets should gradually return to more balanced conditions with improved long-term affordability, especially in the Greater Toronto and Vancouver regions."
Genworth is not forecasting the bulk-portfolio insurance business to return to prior levels, however. Mr. Levings said he anticipates Canada's big banks will buy "little if any" portfolio insurance under the rule structure, but said there is still a smaller market for the product among mortgage-finance companies.
Genworth reported higher net income of $150-million or $1.61 a share in the second quarter, up substantially from $91-million or 99 cents a share last year, in part because of lower losses on claims as well as a significant increase in income from its $6.3-billion investment portfolio.
Mr. Levings said Genworth will make a submission to Canada's banking regulator, the Office of the Superintendent of Financial Institutions, about its recent proposal to further increase stress-testing standards for uninsured mortgages. The proposal has already been met with opposition from some within the real estate sector who fear it will make it too hard for buyers to qualify for mortgages on top of other recent regulatory changes.
Mr. Levings said it is premature to comment on the proposal in detail, but said further stress-test hurdles "will naturally dampen mortgage demand in this segment," and said there is a potential "for unintended consequences."