Broker opinion is split -- following news that CMHC is considering banks to pay a deductible before mortgage claims are paid out – with some believing the move will lead to more careful underwriting and others thinking it could result in higher fees for clients.
“This should hopefully force them to scrutinize and properly underwrite their deals submitted by their employees a bit more closely,” Daniel McKay of Alberta Mortgage Centre wrote on MortgageBrokerNews.ca. “I'd love for them to have to pay deductibles on insured mortgages and then lose that money and receive no compensation on the defaulted mortgages when CMHC discovers that they granted approval based on misrepresentation or fraud on the part of that bank or their employee(s).”
According to Financial Post Sources, OSFI and CMHC are in discussions about the potential policy change, though the Canadian Bankers Association, unsurprisingly, opposes the move.
And while most responsible underwriting may be one result, some brokers – who believe the banks will pass the extra cost onto the borrower -- aren’t so optimistic.
“In the end the entire borrowing public would end up funding the deductibles for those that defaulted through higher rate,” Ron Butler of Verico Butler Mortgage said. “Like every other government idea it seems to make sense and it appeals to the public: let the big banks suck up some deductible costs to teach them to be better underwriters but in the end that will never happen.”