Mortgage Insurance: Explained


4 minute read

May 4, 2010

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…

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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  1. Anonymous

    at 8:18 am

    Honestly, if CMHC wouldn’t approve it, it makes you think why they wouldn’t in the first place. I would argue that it’s cheap credit like this that is causing a never ending spiral of upward prices, benefiting realtors such as yourself. Come to think of it, I would argue that with less than 15-20% down, people shouldn’t even be thinking about home ownership (with certain exceptions), but I digress.

  2. David Fleming

    at 8:59 am

    @ Anonymous

    Wow, I don’t know what Realtors had to do with this post, but you certainly took your shot!

    Regarding the 10-15% downpayment, I can tell you that I work with a lot of first time buyers and most would be lucky to have 15%.

    If you are of the opinion that nobody should buy without 20% down, then that would likely cut the amount of transactions in HALF.

  3. JG

    at 10:23 am

    I think CMHC, being a Crown Corpoaration, is more conservative in their approach. GE seems to approve many deals where CMHC will not. Why? I dont know.

    AIG was in the game, until the market crash took them out. They no longer provide Insurance. But when they were in the game, man, were they ever aggressive – they would approve anything under the sun! It was nice to have other options.

    I cant speak to the ‘black listed’ aspect of the post – but if one lender is working with CMHC, they are assigned a ‘file number’. Only until that file is severed by the first lender with CMHC, can another lender try to get their deal approved. Maybe this never happened – so no dice.

    But, this is why its great to have a competitive market – it gives the people options.

    Just my two cents.

  4. Aguduser

    at 10:42 am

    David, “that would likely cut the amount of transactions in HALF” – I think that’s Anonymous’ point, no? Larger down payment required, less buyers qualified, less competition, less bidding wars, price wouldn’t be pushed up so fast. As well, less transactions, less money goes into agents’ pockets.

    Not that I agree that all buyers should have 20% down, though.

  5. Meh

    at 11:02 am

    This story is like someone going to a doctor and not getting the prescription they want because it’s not what they need, so you instead take them to a less reputable doctor so he can get it.

    Banks already overquality people, if this guy couldn’t afford more than 900 according to his bank, then that’s the truth, unless there is some special self employed circumstances.

  6. geoff

    at 11:49 am

    Meh, it’s also like getting a second opinion if the first doctor says ‘cut the foot off’. God knows I would. You can warp any example to suit any situation.

    Reality is not so black and white. While it’s true that some people get mortgages they shouldn’t, it’s also true that some people get denied mortgages they shouldn’t. My parents, who bought their house in 1967, have admitted to lying on their mortgage application in order to get the money and then saved, struggled, and worked to ‘make it true’ and never ever missed a payment (ever). Balance, people, balance.

  7. David Fleming

    at 11:58 am

    @ Meh,

    You are wrong. Period. Space. Enter. Enter.

    A thousand lenders have a thousand different lending criteria and will come up with a thousand different conclusions.

    Just because “Lender A” approves somebody for $200,000, doesnt’ mean that “Lender B” is less reputable for approving that person for $225,000.

    Genworth is no less reputable than CMHC. In 2009, Genworth was up to a 50% market share at one point, but Canadian banks have shied away from them.

    As “JG” might or might not agree, a bank is ONE lender, and a broker has access to FIFTY lenders. It seems to reason that the bank might not always get approval at the same rates and/or terms as the other FIFTY institutions.

    This isn’t about reputation – this is about options.

  8. Jamie

    at 12:18 pm

    @ Anonymous

    Why are people such as yourself so hard on realtors? My sister sells real estate and she works very hard for her money! It’s a competative business and sometimes you can do a ton of work for someone and then they’ll go and purchase a property with someone else. It’s happened to her a couple of times. Even if you have a signed agreement with them (which she did), it takes a lot of time, money and effort to do anything once they’ve gone behind your back. She showed on couple more than 80 houses and then they bought with the listing agent. If realtors are making money in the current housing market, where many places attract multiple bids and only ONE buyer (and realtor) wins, they’ve earned it. I’ll stick to my salaried desk job thank you very much. 🙂

  9. Meh

    at 12:27 pm

    Sure, different lenders will have different values. You’d expect small variances.

    An extra $300,000? 30% increase? no way.

    This new lender found an extra 1,500$ a month in disposable income that the original didn’t think he had? I don’t think so.
    This is also a person with a salary (I’d hope) in atleast the high 100,000s, that only has 100,000 saved up?

    Ya, this is gonna end well.

  10. MI Girl

    at 8:44 pm


    I am a dedicated follower and read your blog every day, usually agreeing or disagreeing with your viewpoints silentlyâ?¦ But the topic of mortgage insurance and the myths surrounding it are very close to my heart as I have worked in the MI industry for the last 12 years.

    I feel compelled to clarify a few points for you and your industry followers: There are currently 3 mortgage insurance companies licensed and writing business in Canada â?? CMHC, Genworth, and Canada Guaranty. Canada Guaranty is the former AIG United Guaranty. AIG United Guaranty was recently purchased by an investment group led by the Ontario Teachers Pension Plan and has been re-branded as Canada Guaranty upon the closing of the sale. One further point worth mentioning is that AIG has continually underwritten new business since 2006 â?? they were definitely hurt by the financial crisis and saw business drop substantially, but have always been alive and kicking. With new parents, Canada Guaranty should now start to gain momentum and visibility in the industry.

    For your reference:

  11. Potato

    at 5:26 am

    From the home buyer’s point of view, it shouldn’t matter who underwrites their mortgage insurance, since bizarrely enough, the premiums are the same between CMHC and Genworth. The banks, however, may care since there’s a difference in counter-party risk between the CMHC and a private corporation…

    I have to partially agree with the others: using a mortgage broker to get a better rate is all win, but to find approval for a higher mortgage is playing with fire: the banks already offer a very large amount of leverage as it is. Sure, some people can handle more, but as in geoff’s example, the operative word is “struggled“.

    That said, since approval amounts are dependent on the rate, I suspect what happened is that the mortgage broker found the client a 5-year fixed rate that was substantially below the bank’s initial qualifying rate, which allowed him to qualify for a larger loan.

    Which, I believe, is a “win on fire” in the parlance.

  12. Kioviadi

    at 10:41 am

    GTA-wide average monthly rents increased in all categories. One-bedroom apartments rented for an average of $1,463 per month, up 2 per cent from the average of $1,430 recorded during same period last year. The average rent for two-bedroom apartments was $1,909, up 5 per cent from the average of $1,813 per month recorded during the January- April period of 2009.

    Ask your self – why pay this money to somebody else, and not to put this money in your own pocket.
    One-bedroom apartments rented for an average of $1,463 per month – pay $1.200 and own the place.

    For a Toronto apartments price will go up on 40% in 2011.
    Great investment, great savings.

  13. Pingback: Understanding Canadian Mortgage Insurance
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