New mortgage capital requirements to mitigate risks surrounding consumers who carry mortgage insurance
In its September 23 statement, mortgage insurer Genworth MI Canada Inc. noted that the draft advisory released by the Office of the Superintendent of Financial Institutions (OSFI) last week represents a significant leap forward in providing a standardized 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,” Genworth said in its press release routed via Canada NewsWire.
The draft requirements, which are slated to take effect on January 1 next year, specifically outline the volume of funds that federally-regulated mortgage insurers need to back their portfolios with. OSFI officials stated that the new guidelines were introduced to mitigate the risks surrounding Canadians who carry mortgage insurance—that is, those who paid less than 20 per cent of their residential property’s purchase price as down payment.
“When house prices are high relative to borrower incomes, the new framework will require that more capital be set aside,” OSFI superintendent Jeremy Rudin stated in a September 23 press release.
Rudin added that the requirements will help the mortgage insurance sector “withstand severe, but plausible losses” in the face of added risk.
Genworth voiced support for what it called a “more risk sensitive capital model”.
“Based on the new framework, the Company estimates that Genworth Canada's pro forma MCT ratio as at June 30, 2016 would have been in the range of 153% to 156%. In addition, the Company held $175 million of cash and investments as of June 30, 2016 and has access to a $100 million credit facility that is undrawn. These resources could be used to enhance the capital of Genworth Canada,” according to the Genworth release. “As a result, the Company expects to be compliant with the new framework upon its implementation on January 1, 2017, subject to business and market conditions.”
“We look forward to continued dialogue with OSFI and other key stakeholders, including customers, to ensure that the capital requirements in the new framework appropriately capture the underlying risk attributes,” Genworth president and CEO Stuart Levings said.
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“The proposed framework is more risk sensitive and incorporates additional risk attributes, including credit score, remaining amortization and outstanding loan balance,” Genworth said in its press release routed via Canada NewsWire.
The draft requirements, which are slated to take effect on January 1 next year, specifically outline the volume of funds that federally-regulated mortgage insurers need to back their portfolios with. OSFI officials stated that the new guidelines were introduced to mitigate the risks surrounding Canadians who carry mortgage insurance—that is, those who paid less than 20 per cent of their residential property’s purchase price as down payment.
“When house prices are high relative to borrower incomes, the new framework will require that more capital be set aside,” OSFI superintendent Jeremy Rudin stated in a September 23 press release.
Rudin added that the requirements will help the mortgage insurance sector “withstand severe, but plausible losses” in the face of added risk.
Genworth voiced support for what it called a “more risk sensitive capital model”.
“Based on the new framework, the Company estimates that Genworth Canada's pro forma MCT ratio as at June 30, 2016 would have been in the range of 153% to 156%. In addition, the Company held $175 million of cash and investments as of June 30, 2016 and has access to a $100 million credit facility that is undrawn. These resources could be used to enhance the capital of Genworth Canada,” according to the Genworth release. “As a result, the Company expects to be compliant with the new framework upon its implementation on January 1, 2017, subject to business and market conditions.”
“We look forward to continued dialogue with OSFI and other key stakeholders, including customers, to ensure that the capital requirements in the new framework appropriately capture the underlying risk attributes,” Genworth president and CEO Stuart Levings said.
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