Mortgage Insursers Push to Keep Zero Down Loans

MORTGAGE INSURERS PUSH TO KEEP ZERO-DOWN LOANS - Financial Post, July 16/08

Private mortgage insurers are pushing for ways to keep no-money-down mortgages alive and are set to meet with Department of Finance officials in the next two weeks to discuss possible options, sources indicate.

The move comes after Ottawa cracked down on mortgage practices that allowed consumers to enter the housing market with no money down and amortize their loans over 40 years. New rules that come into effect on Oct. 15 would demand a 5% repayment and shorten the length of amortization from 40 years to 35 years.

Sources indicate the country's major private insurers, which control about 30% of the market, have told mortgage brokers they are working on a solution which would keep the zero-down option alive and even the 40-year amortization.

One insurer, PMI Canada, which has been in the market for about a year, indicated it hopes to come up with some alternatives.

"PMI Canada is still in the process of reviewing and analyzing the new mortgage insurance measures for industry and market impact. PMI Canada looks forward to meeting with the Department of Finance at the end of the month to better understand the new measures, after which we will be better able to make an informed strategic business decision as to whether or not we are able to continue to offer the 40-year mortgage insurance option," said Janet Martin, chief executive of PMI Canada, in an email to the Financial Post.

An industry source said the private mortgage insurers are looking into creating a product in which the first 95% of a mortgage is backed by the government with the last 5% securitized independently by the private mortgage insurers.

The new rules from Finance appear aimed as much at Canada Mortgage and Housing Corp., a Crown corporation that controls 70% of the mortgage-insurance market.

In the hotly competitive mortgage-insurance market, CMHC has often been the aggressor in the marketplace. For years, the entire market was CMHC and Genworth Financial Canada, which has controlled the other 30% of the multi-billion mortgage industry. In the past two years, AIG United Guaranty, a subsidiary of and PMI have been trying to crack the market.

CMHC and Genworth both responded to the intrusion by insuring products with longer amortizations. CMHC's decision to insure mortgages with zero money down ended up incurring the wrath of David Dodge, the former governor of the Bank of Canada, two years ago.

Mr. Dodge feared interest only mortgages were fuelling the housing market and demanded a meeting with CMHC. Some industry observers say new rules put in place last week are the long-awaited response to Mr. Dodge's concerns, coming after months of consultation.

Now, the private sector is suggesting it wants to be excluded from the new rules. The Private firms are looking at trying to do the 100% insurance themselves. Brokers have been told to wait a week for nore news before they can find out how to proceed.