The increase will take effect May 1 and apply to owner-occupied properties, as well as those owned by the self-employed and properties with one to four rental units, Canada Mortgage & Housing Corp. said today in a statement.
“The higher premiums reflect CMHC’s higher capital targets,” Steven Mennill, CMHC vice president of insurance operations, said in the statement. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long-term stability of the financial system.”
CMHC insures mortgages against default, and its insurance is fully backed by the federal government. By law, Canadian mortgages that have less than a 20 percent downpayment must be insured.
The change will increase monthly mortgage payments by about C$5.00 ($4.51), CMHC said.
Genworth (MIC) MI Canada, which competes for mortgage-insurance business with CMHC, surged 4.8 percent to close at C$36 in Toronto. The Oakville, Ontario-based company said after the CMHC announcement it will also increase its premium rates by an average of 15 percent.
“We believe this new pricing is prudent and more reflective of increased regulatory capital requirements,” Genworth Canada Chief Executive Officer Brian Hurley said in a statement today.
Canada Guaranty Mortgage Insurance Co. Chief Executive Officer Andy Charles said in an e-mail his company, which also competes with CMHC, is reviewing its prices.
While “some demand may be pulled from the housing market,” the impact will probably be “minimal,” Canaccord Genuity Corp. analyst Evan Minsky said in a note to clients today. The increase also won’t have an immediate impact on Genworth’s earnings, he said.
The increase will boost CMHC’s revenue by C$150 million to C$175 million a year on a cash basis, said Brian Naish, the agency’s chief financial officer, in a conference call with reporters.
Finance Minister Jim Flaherty gave new powers in 2012 to the nation’s banking regulator to oversee CMHC’s finances and added two government deputy ministers to the agency’s board of directors. Flaherty said in December he regrets that the agency has grown as large as it has and promised to take additional measures if a reduction in the amount of government insurance on mortgages is needed.
To contact the reporter on this story: Andrew Mayeda in Ottawa at email@example.com
To contact the editor responsible for this story: Paul Badertscher at firstname.lastname@example.org