Emp Latest News


Primer on Proposed New Regulatory Capital Framework for Mortgage Insurers

      Residential mortgage default insurance premiums are likely to increase for homes in hot real estate markets as a result of beefed-up capital requirements for Canada’s mortgage insurers coming into force next year. And it is homebuyers who are expected to bear the added cost, rather than the financial institutions that lend the money for home purchases.

      The capital changes proposed last week by the Office of the Superintendent of Financial Institutions require added consideration of factors including the credit score, outstanding loan balance, and amount of time left to fully repay the mortgage for those who require default insurance. The new rules are to come into effect Jan. 1 following a consultation period, and are intended to account for risks in hot real estate pockets across the country including high price-to-income ratios.

       Genworth MI Canada Inc., the parent company Canada’s largest private residential mortgage insurer, issued a statement Friday that said the company expects it will compliant with the new framework, “subject to business and market conditions.” The mortgage insurer estimates its pro forma minimum capital test ratio as of June 30 at between 153 per cent and 156 per cent, above OSFI’s target of 150 per cent.

      Genworth MI Canada Inc. (the "Company") announced that on September 23, 2016, the Office of the Superintendent of Financial Institutions ("OSFI") released a draft advisory for comment titled "Capital Requirements for Federally Regulated Mortgage Insurers". This draft advisory provides a new standard framework for determining the capital requirements for residential mortgage insurance companies. The proposed framework is more risk sensitive and incorporates additional risk attributes, including credit score, remaining amortization and outstanding loan balance. The comment period for the draft advisory ends on October 21, 2016, after which OSFI intends to finalize the advisory. The finalized advisory will come into force on January 1, 2017, replacing OSFI's current advisory, "Interim Capital Requirements for Mortgage Insurance Companies", which has been in effect since January 2015.

       Further to the press release issued on September 23, 2016, the Company has summarized the key elements, along with examples of how the formulas may be interpreted, to allow for a better understanding of the draft framework, entitled "Primer on Proposed New Regulatory Capital Framework for Mortgage Insurers".

      Genworth MI Canada Inc. (MIC.TO) through its subsidiary, Genworth Financial Mortgage Insurance Company Canada (Genworth Canada), is the largest private residential mortgage insurer in Canada. The Company provides mortgage default insurance to Canadian residential mortgage lenders, making homeownership more accessible to first-time homebuyers. Genworth Canada differentiates itself through customer service excellence, innovative processing technology, and a robust risk management framework. For more than two decades, Genworth Canada has supported the housing market by providing thought leadership and a focus on the safety and soundness of the mortgage finance system. As at June 30th, 2016, Genworth Canada had $6.4 billion total assets and $3.6 billion shareholders' equity.

      Peter Routledge, an analyst at National Bank Financial, said he expects two headwinds to hit the Canadian housing market if the OSFI mandated changes go ahead as proposed: higher mortgage rates and a higher probability that foreclosures will increase. The combined impact could contribute to a cooling of the market. He said higher mortgage insurance premiums would hit the first-time homebuyers hard, as well as the mortgage broker channel that relies on this group. As a result, he believes, mono-line mortgage lenders that originate prime insured mortgages through the broker channel “are most at risk to a slowdown in sales activity directly related to higher mortgage insurance premiums.” The analyst said the new rules could also serve to crimp the practice of extending the amortization period of a mortgage to reduce monthly payments when a borrower is in financial distress. This is because, under the new framework, more capital would have to be set aside against those mortgages.

     Increased mortgage insurance costs triggered by the new rules could also drive demand for uninsured mortgages.