Tissue Paper and Kleenex.
In-Line-Skates and Rollerblades.
Mortgage Insurance and C.M.H.C.
Do you follow?
Did you follow that?
Tissue paper is almost never called “tissue paper.” It’s almost always referred to as “Kleenex,” even though Kleenex is a brand. How many people in your office will ask, “Pass me some Kleenex?” And how many will ask “Pass me a tissue, please?”
When Rollerblades first hit the open market back in 1991, they were a brand of in-line skates manufactured by Nordica, who we all know as a major ski-boot manufacturer.
But no matter which companies entered the market place for in-line skates after Nordica, and no matter how many competitive products were launched, the general public continued to refer to in-line skates as “Rollerblades.”
Perhaps it was because Rollerblades were the first major in-line-skate to enter the market.
But don’t confuse this with “first mover advantage.” Ebay had first mover advantage on the online auction market, but that doesn’t mean that competitive auction websites are also referred to as “Ebay.”
No, I think it has more to do with the major market share of the product, and of course the ease of the turn-of-phrase. Rollerblades gave birth to the cool slang term “blades,” and the activity “blading,” and it was just a whole heckuva-lot easier to keep up with than “in-line-skates.”
Now, my point moves to the mortgage insurance industry, and how the general public views C.M.H.C.
C.M.H.C. is the “Canadian Mortgage & Housing Corporation,” which is a Crown corporation owned by the Government of Canada.
Their primary function is to provide mortgage insurance of residential mortgage loans to Canadian home-buyers.
As we all know, any time a buyer purchases a residential property with a downpayment of less than 20%, the mortgage is considered “high ratio.” This figure was reduced from 25% back in 2007.
In Canada, all “high ratio” mortgages must be insured.
That is where C.M.H.C. comes into play.
There is a misconception among buyers that this mortgage insurance is somehow present to protect the buyer or the mortgage. That is simply not the case.
The mortgage insurance is there to protect the mortgage lenders themselves against mortgage defaults. Simply put, this insurance makes it easier for banks and other lending institutions to carry on with high ratio lending practices as they know that some of the risk will be absorbed the Canadian Government.
It is quite common for buyers, sellers, mortgage brokers, real estate agents, and the like to refer to a high ratio mortgage as a “CMHC” mortgage.
It is also very common for “mortgage insurance” to be referred to as “CMHC insurance.”
This is tantamount to calling “tissue paper,” Kleenex.
There are other mortgage insurers in Canada, and they function in the same way was C.M.H.C.
Genworth Financial is another big player in the Canadian mortage insurance industry, as they morphed from GE Capital.
But C.M.H.C. has a 70% market share, as most Crown corporations usually win out in their individual industries…
Last week, a client of mine was looking at a $1.1 Million condo in the King West area.
He had been approved by his private banker at RBC (no, I’m not afraid of putting this out there…) for a purchase price of $900,000. He decided that he wanted this condo in the King West area for $1.1 Million, and he would speak to his mortage broker about getting a higher approval.
I’ll save you another story about how exceptional my mortage broker is and how walking into your jolly-good corner-store bank to get a mortage is a terrible idea, but I will say that my client was unable to get the financing through his banker at RBC, and Joe Sammut of Mortgage Architects came through once again and got my client approved for up to $1.2 Million.
However, there were some lingering issues from this little switch-a-roo!
The banker from RBC essentially got my client black-listed from C.M.H.C. for this particular King West condo, since they refused to approve the mortgage and the transaction.
When my mortgage broker took the deal to his other lenders (Scotia, Macquarie, etc.), they couldn’t get this high-ratio deal approved through C.M.H.C.
So, they took it to Genworth instead, and all was well in the world of gorgeous $1.1 Million condos with hot tubs and pool tables once more…
Genworth Financial approved the transaction and provided insurance on the high-ratio mortgage. My client was purchasing with 10% down and thus the transaction could not take place without mortgage insurance.
With C.M.H.C. not approving the deal, perhaps there are some banks, brokers, or Realtors out there who might think that the deal is sunk.
But Genworth, AIG, and IDC Insurance Direct Canada would likely jump at the chance to insure the mortgage!
Just as “Life Brand” of tissue paper is smiling at you from the awful shelf-space either six feet up or right next to the ground on aisle seven of Pharma Plus.
When I got my first pair of Rollerblades in 1991, there was no way in hell I was going to buy “AirWheels” or whatever the hell the inferior yet similar product was called. I had built up this idea of “Rollerblades” in my head, and they seemed to be so much shinier and cooler than any of the other products. And come to think of it – those other products were very few in number!
In Canada, home-buyers have a choice in who they purchase their mortage insurance from.
An argument could be made that it doesn’t really matter, and I might not disagree.
But if your bank or lender tries to tell you that you can’t make a particular deal work because C.M.H.C. won’t insure the mortgage, now you know that you have options…