CMHC at a crossroads: agency faces tough decisions after losing market share in mortgage insurance

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The implementation of stricter standards has dropped him to third place – and at least one observer doesn’t think he can regain his position

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When the Canada Mortgage and Housing Corporation decided to tighten its underwriting practices last summer, it was the largest mortgage insurance provider in the country, capturing 49% of new business in the second quarter.

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“There is no doubt that we have voluntarily chosen to forgo some profitable businesses that our competitors would find attractive,” then Managing Director Evan Siddall wrote in August in a letter to Canada’s largest lenders, as a result of the implementation of stricter standards. Siddall used the letter to warn banks and other mortgage lenders about risky lending, warning that “there is a dark economic belly in this business that I want to expose.”

The hope was that competitors would follow the organization’s lead for “the good of our economy”. But it turns out they didn’t.

Instead, CMHC saw its market share for new insurance underwriting plummet, leaving the crown corporation in third place, behind private insurers Sagen and Canada Guaranty. In the first quarter of 2021, CMHC held only a 23% share of new sales, according to figures calculated by RBC Capital Markets. Sagen (formerly Genworth Financial) held 44 percent of the pie, followed by Canada Guarantee with 33 percent.

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  1. The Canada Mortgage and Housing Corporation changed its underwriting policies for insured mortgages last year, tightening the re-application criteria for credit scores, amount of income spent on housing costs and down payments

    Private sector mortgage insurers say they are gaining market share as CMHC rules tighten

  2. Sagen MI Canada claims to have gained market share, with its percentage of the default insurance market for mortgage lenders

    CMHC’s loss is Sagen’s gain, as private sector mortgage insurer sees market share grow

Earlier this week, CMHC admitted the higher standards were a mistake and reversed them, but some in the financial industry are wondering if the damage has ever been done. While seeing the private sector swallow up CMHC’s lost share should not shake things up when it comes to housing prices, it hurts the agency’s presence in the sector as well as its capacity. move the housing market with further adjustments to its underwriting practices. And that raises a question that borders on the existential: where does CMHC go from here?

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“You wake up one morning and realize that CMHC is number 3 in the market and suddenly it doesn’t dominate the market like it used to be,” said Benjamin Tal, deputy chief economist. at CIBC Capital Markets, at the Financial Post in an interview this week. “By regaining market share, they will regain some influence, but I think the days when CMHC was the market, those days are over.

Tal noted that CMHC will now have to find a new identity in the marketplace, which comes as Romy Bowers, who previously served as CMHC’s Senior Vice President of Client Solutions, takes the reins.

Dan Eisner, CEO and founder of True North Mortgage, said Bowers will face an uphill battle to bring CMHC back to deals with other industry players.

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“I think you have three factors against Romy on this: one is that we were burned by CMHC and so we are reluctant. Second, we’ve made all of those IT investments. Now you’re asking us to (reverse them), ”Eisner said, explaining that the mortgage industry has been forced to modify software to accommodate changing underwriting practices. “Third, you only have the personal relationships of lower level direct underwriters that have developed over the past year. So I think it’s going to be a fight for Romy to bring that back.

CMHC will likely seek to fill its shortfall by looking at its other units to add revenue.
CMHC will likely seek to fill its shortfall by looking at its other units to add revenue. Photo by Ernest Doroszuk / Toronto Sun / Postmedia Network

Eisner expects CMHC to seek to strengthen its other segments to offset the loss in revenue resulting from its declining market share. One area he thinks they will aim to offset that income is in the fees the organization charges to manage the Canadian mortgage bond and mortgage-backed securities markets.

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“We saw the fees increase dramatically in January,” Eisner said. “It makes me wonder… that since they lost market share, so they don’t get their pound of flesh up front, they get a pound of flesh at the end. “

Higher fees, Eisner suggested, could lead to higher mortgage costs, as lenders would have to cover them.

Until the change of leadership, CMHC had evolved under Siddall’s leadership, building on its mandate to provide more affordable housing to Canadians. He even announced that he might change his name to something like “Housing Canada” in the future to reflect a goal of ensuring that “by 2030 everyone in Canada has a home that they want. can afford and that meets his needs ”.

Higher fees to cover losses could impact mortgage costs

CMHC may also seek to build on or benefit from its large stock of housing market data.

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“CMHC is a major provider of housing market data that doesn’t exist, and the competition doesn’t have that capability,” said Tal. “So this is something that they will try to capitalize on when they try to regain market share.”

But it is unlikely that the competition will voluntarily give up this turf. Sagen saw its subscription volumes increase and, in April, announced that it had been fully acquired by Brookfield Business Partners LP, which privatized the company after purchasing the remaining outstanding shares at $ 43.50 apiece.

Rob McLister, mortgage editor at Ratesdotca, told the Financial Post earlier this week that borrowers may have a newfound loyalty to these private sector default insurers, making it much more difficult for CMHC.

McLister added that it is important to reframe the organization’s priorities to bring the company back to balance in the Canadian mortgage market.

“CMHC needs to get back to a more pro-industry position and sort of separate its overall policy initiatives – or maybe even leave those to government and start doing what it does best again, that’s That is, provide default insurance to people who don’t have 20% down and provide industry insight in terms of data and research, ”McLister said.

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