U.S. Mortgage Insurance Firms Vie to Enter Booming Canadian Market

U.S. companies planning to enter the expanding Canadian mortgage insurance market say they will make it easier for more Canadians to own homes. But they acknowledge criticism that new products could push vulnerable groups further into debt.

The lucrative mortgage insurance market is about to undergo a revolution north of the border. Last year, when there were only two government-backed providers, insurers covered a whopping $322 billion worth of mortgages. That’s one-third the size of the U.S. market, but enough to place Canada second in the world, according to the Toronto Star.

It’s the law in Canada that home buyers with a down payment of under 25 percent buy mortgage insurance. It covers the mortgage lender — such as a bank or credit union — if the home buyer ends up in default. By deferring some of the risk away from lenders, it allows them to offer mortgages to riskier groups, such as new immigrants or the self-employed.

For decades, Crown corporation Canada Mortgage and Housing Corp. had the market locked up. About a decade ago, Genworth Financial Canada came in as the first private rival. This spring, Canada announced in its budget that it planned to extend its guarantee for companies that insure mortgages.

“These changes will result in greater choice and innovation in private mortgage insurance, benefiting consumers and promoting home ownership,” the budget stated.

Around that time it became clear that U.S.-based AIG was preparing to enter the market. There are now at least three American firms wooing the big banks, credit unions and mortgage lender groups.

In recent months, rumours of new entrants alone have been enough to shake the market, said Mark Tonnesen, a former Royal Bank employee who is now chief executive of North Carolina-based Triad Guarantee Insurance, another firm planning to carve out a piece of the Canadian market.

“I think that the advent of the 40-year home loan, and now mortgages that are being allowed up to 100 percent of loaned value, are indications of the kind of support that Canadian consumers can get through increased competition on the mortgage insurance side,” he said.

But those innovations have also come under criticism for placing vulnerable Canadians further into debt and potentially raising the chance of a large number of foreclosure filings come the next big economic downturn. Tonnesen suggests it’s not the insurers’ responsibility.

“I don’t think that the private sector ought to do anything other than create choice, convenience and innovation, with the public interests in mind. The public interests meaning whether or not demand for such an innovation exists,” he said.

As for the larger picture?

“We look forward to working then with the government to make sure any public policy issues are addressed effectively, and I think that good and healthy tension between those two builds a strong Canada,” he said.

Stephen Smith, CEO of California-based PMI Group Inc., said “it really is the balance between giving people the opportunity to participate in home ownership … but not doing so in a way that increases foreclosure rates and really harms communities.”