CMHC Mortgage Loan Insurance Overview

Transcription

1 CMHC Mortgage Loan Insurance view Mortgage loan insurance is typically required when homebuyers make a down payment of less than 2% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5%. In Canada, mortgage loan insurance is available from CMHC (a Crown Corporation) and from private mortgage loan insurers and is backed by the Government of Canada. The Minister of Finance sets the parameters related to the government guarantee of mortgage loan insurance. Since government-backing applies to all insurers, CMHC and private sector insurers must operate within these parameters. Since 1954, CMHC s role in providing mortgage loan insurance products and tools has helped shape Canada s housing market and has contributed to its stability in both good and bad economic times. CMHC provides qualified Canadians in all parts of the country with better access to housing of their choice. CMHC s mortgage loan insurance activity is comprised of transactional homeowner insurance (high ratio and low ratio homeowner mortgage loans), portfolio insurance and multi-unit residential insurance. Mandated to operate on a commercial basis, this activity is self-sustaining and does not receive funding, in whole or in part, from Parliamentary appropriations. The premiums and fees it collects and interest it earns must cover related claims and other expenses and also provide a reasonable return to the Government. In fact, over the past decade, CMHC s insurance business has contributed more than $15 billion of the $18 billion contributed by CMHC towards improving the Government of Canada s fiscal position through both net income and income taxes paid. Serving Gaps in the Marketplace CMHC is the only insurer of loans for large multi-unit properties (greater than four units) including rental, nursing and retirement homes, and a significant percentage of our insured high ratio homeowner loans are in rural areas and smaller communities that are less served by private sector insurers. Managing Within the Total Outstanding Insured Loans Limit CMHC s mortgage loan insurance in-force is limited by legislation to a maximum of $6 billion. At the end of 213, CMHC s total insurance-in-force was $557.1 billion, $9 billion lower than the DID YOU KNOW? OVERVIEW OF CMHC S INSURANCE-IN-FORCE 1 Average amortization period at origination Average credit score at origination 25 years 728 for transactional homeowner 757 for portfolio Percentage of transactional homeowner approximately borrowers with fixed- rate mortgages 75% who are ahead of their payment schedule by any amount Average loan-to-value (LTV) based on 55% updated property value 2 (transactional homeowner and portfolio) Average outstanding loan amount $14,781 overall $18,5 for transactional homeowner 1 all, for all insurance products, unless otherwise noted. 2 LTV calculated on the basis of updated property values reflecting changes in local resale prices. insurance-in-force at year-end 212 and 3% lower than plan as mortgage repayments have more than offset new insurance written. Insurance-in-force is expected to continue to decline in 214 when further government limitations on portfolio insurance are introduced. More information on CMHC s insurance-in-force is available in CMHC s 213 Annual Report. Ensuring all Portfolio Quality CMHC is able to positively influence the functioning of the residential mortgage market by implementing stringent underwriting standards and promoting consistency, quality assurance, fairness and due diligence across the lending industry. All applications for insurance are initially reviewed and assessed by lenders prior to submission to CMHC. Upon receipt of an application for mortgage loan insurance, CMHC assesses the risks presented by the borrower, property, market in which the property is located, and the application as a whole. Key borrower risk factors include the level and source of down payment and stringent credit requirements that demonstrate the borrower s ability to manage financial obligations. Date modified: May 5, 214 Canada Mortgage and Housing Corporation 1

2 CMHC Mortgage Loan Insurance view Arrears and Claims Paid The profile of CMHC s insurance-in-force demonstrates the nature and level of risk associated with the Corporation s mortgage loan insurance business. As at 31 December 213, the rate of arrears (loans that are more than 9 days past due over the number of outstanding insured loans) was.34%, a.1 percentage point decrease compared to the prior period CMHC s Arrears Rates (%).35%.34% Distribution of CMHC s Insurance-in-Force Distribution of Transactional Homeowner and Portfolio Insurance-in-Force by Loan-to-Value (LTV) Ratio Based on Updated Property Values 1 (%) % Average LTV % > 5.1 > 6.1 > 7.1 > 8.1 6% 7% 8% 9% > % > 95% It is important to note that not all mortgages in arrears result in a claim to CMHC, as lenders are required to work with borrowers who are experiencing difficulty to help bring their mortgage back into good standing and resume regular payments. Claims paid in 213 were $436 million, a $96 million (18.5%) decrease from the prior period. This decrease was primarily the result of lower transactional homeowner claims paid, which is in line with improving economic conditions including improvements in the arrears rate. As shown in the graph above, based on updated property values, the majority of CMHC-insured mortgages currently have loan-to-value ratios of 8% or less. The average equity in CMHC s insured transactional homeowner and portfolio product lines has remained stable at 45% as at year-end LTV calculated on the basis of updated property values reflecting changes in local resale prices. Canada Mortgage and Housing Corporation 2

3 CMHC Mortgage Loan Insurance view Accelerated Payments Shorten Amortization Periods Distribution of Insurance-in-Force by Loan Amount (%) Average outstanding loan amount ($) % 5 2, 177,227 18,5 4 15, 14,587 14, ,21 152, , 2 5, 51,87 53,693 1 $6, or under $6, to $1, $1, to $25, $25, to $4, $4, to $55, $55, all Transactional homeowner Portfolio Multi-unit residential (per unit) The average amortization period at the time of mortgage approval for all insurance-in-force loans was 25 years as at year-end 213. CMHC analysis shows that approximately a third of CMHC-insured transactional homeowner borrowers with fixed-rate mortgages are consistently ahead of their scheduled amortization by at least one mortgage payment per year. The proportion rises to about three quarters for those who are ahead of their payment schedule by any amount. Accelerated payments shorten the overall amortization period, reduce interest costs, increase equity in the home at a faster rate, and lower risk over time. In 213, 6 of CMHC s overall insurance-in-force had outstanding loan balances lower than $25,, which was well below the average MLS price in Canada of $382,568.The overall average outstanding loan amount is of $14,781. Canada Mortgage and Housing Corporation 3

4 CMHC Mortgage Loan Insurance view Distribution of Insurance-in-Force by Province/Territory Consistent with its mandate, CMHC provides mortgage loan insurance in all Canadian markets. This spreads the Corporation s insurance-in-force nationwide across all provinces and territories, diversifying risk in different regions, each with a distinct economic outlook..4% 1.2% 15.6% % 2.6% 4.2% 17.4%.3% 1.5% 2.3% Territories Saskatchewan Quebec New Brunswick British Columbia Alberta Manitoba Ontario Newfoundland and Labrador Nova Scotia Prince Edward Island Canada Mortgage and Housing Corporation 4

5 CMHC Mortgage Loan Insurance view Distribution of Insurance-in-Force by Credit Score at Origination Homeowner Portfolio > 6 66 < 6 No score > % > % < 6 No score > 66 7 > 7 > 7 86% Canadian credit scores generally range from 3 to 9. The higher the borrower score, the lower the risk of borrower default. In order to qualify for a CMHC-insured high ratio loan, a borrower must have a credit score of at least 6. CMHC has been able to manage its risks through prudent underwriting practices. Average credit scores at origination for all insurance-in-force loans (including low-ratio loans, which do not require a credit score of 6) as at the end of 213 was 728 for transactional homeowners and 757 for portfolio, up from 726 and 755 respectively in 212. Furthermore, the average credit score for CMHC s transactional homeowner loans approved in 213 was 741, up from 738 in 212. CMHC s portfolio insurance average credit score was 769 in 213, up from 762 in 212. These high average credit scores demonstrate a strong ability among homebuyers with CMHC-insured mortgages to manage their debts. Canada Mortgage and Housing Corporation 5