According to Stuart Levings, chief executive officer of Genworth MI Canada Inc., the head of Canada’s largest private mortgage insurance company, mortgage fraud is now on the decline in Canada thanks to tougher regulations, better training, and new technology.
“The industry takes misrepresentation very seriously and as a group we’ve all taken some very strong actions over the last few years to reduce instances of misrepresentation and fraud in the industry,” Levings said.
These remarks from Levings come after Home Capital Group Inc., a major Canadian alternative mortgage lender, revealed that it had suspended 45 brokers in July 2015, after evidence was uncovered that some borrowers had been approved for mortgages with fake employment letters that overstated their incomes.
After this revelation, Home Capital said that its mortgage insurers conducted audits after the company disclosed problems with some of its mortgages, and that the company was confident that its loans would be covered by insurance, given that none of its employees were complicit in any fraud.
Levings declined to comment on what occurred with home Capital, but he did say fraudulent mortgage applications have become less of a problem in the wake of the global financial crisis. As a major mortgage insurer, Levings’s company Genworth uses highly trained underwriters, along with a special investigations unit and “third-party tools,” to act as “a second set of eyes” in order to uncover issues with the mortgages it insures.
Genworth rejects 7 to 10% of all loans, Levings said, and that it can refuse to pay out claims if it finds “unmitigated, recurring material deficiencies in the underwriting process,” something that he added was “a very rare occurrence.”
“On balance, the quality of the loans in the market as a whole is very strong in today’s environment,” he said.
Genworth also saw its newly written mortgage insurance premiums grow 28% in their second quarter, compared to the same period last year. This growth came from a strong housing marketing in Ontario, while they have yet to see a large increase in mortgage delinquencies in regions like Alberta and Saskatchewan, where areas are oil-sensitive. The company has begun to take steps recently to tighten its underwriting standards in oil-producing regions.
The majority of mortgage delinquencies for Genworth have come from Quebec and Atlantic Canada, particularly from major cities like Montreal and Halifax. Large cities like Toronto and Vancouver, with currently hot housing markets have seen first-time buyers seeking mortgages in communities outside the city proper. The rest of the Canadian housing market “continues to see a soft landing,” according to Levings.
Genworth expects to see mortgage arrears increasing towards the end of 2015, and into 2016, as mortgage borrowers in oil-producing regions begin to eat away at the financial cushion, which was built up before oil prices plunged in the fall of 2014.
The slowing Canadian economy could start to weigh on the housing market, Levings warns. “The economy is in a transition and we could see additional economic pressure, particularly in the oil-producing regions.”