Genworth hammered by new mortgage regulations
August 16, 2017
New mortgage insurance rules announced in 2016 by the federal government are taking a toll on 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, when compared with $31.7 billion in the second quarter of 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.
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. 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.