What of the remaining 30% of the mortgage insurance market?
Rating Mortgage Insurance Companies in Canada
• The insurance company covers 100% of the loan plus accrued interest against loss by the lender if the
• To establish a degree of parity between the CMHC and private MI providers, the government of Canada
provides a 90% guarantee of private MI claims. This places the private and public sector mortgage insurers
on a more level playing ﬁeld for the purposes of calculating a lender’s risk exposure to MI providers.
The tax payers are backing the vast bulk of all insured mortgages. One has to hope that the insurance companies are aggressive at put-backs. Moral hazard would suggest the banks are not being very careful with the mortgages they are issuing. Unfortunately, the precedent from the 2008 downturn is to turn CMHC into a bailout mechanism, rather than an instrument of fairness.
And it's not just high loan to value mortgages that are backed, it's also any mortgage that is destined for securitization.
From Inside CMHC from Canadian Mortgage Trends.com
Pierre: At the end of 2008, the percentage of insured mortgages outstanding, compared to residential mortgage credit outstanding, was estimated at 68%.Unfortunately, I couldn't find any newer numbers than this.
Noteworthy: A large percentage of insured mortgages are under 80% loan-to-value. That’s because many lenders use CMHC “portfolio insurance” (which provides the same default insurance coverage as for high ratio mortgages) to lower capital requirements and/or as a prerequisite to securitizing their mortgages
I love in this interview how they say, oh well, all is good since we hold 2x the capital required by OSFI, but never actually say what that number is.
The Minimum Capital Test is here. Pages 35-41
Mortgage insurance margins range from $.10 to $1.10 on $100 of original mortgage amount with factors applied to these of .04 to 1.75. This supports the generally cited number of 1.5% or so. Minimum capital requirements vary by the portfolio the company is holding at any time.
Note: profits from CMHC all these years have been dividended back to the Canadian Government, i.e. the tax payers (except for 2008 when they held it back and built reserves instead). It's not like the potential capital they could have been holding vanished; it's been spent on other things. It's possible that if the mortgage insurance fee has been set properly, even if the capital requirements look thin, the tax payers will not end up in the red, overall, but they are acting as secondary insurers, whether they want to be or not. And in reality, mortgage insurance is just a tax since much of it goes on a pass thru to the government.