Genworth using internal resources to deal with foreclosures

tara perkins

FINANCIAL SERVICES REPORTER— From Thursday's Globe and Mail

Genworth MI Canada Inc. (MIC-T21.700.010.05%), the country’s largest private sector mortgage insurer, has set up its own internal group of real estate agents to deal with foreclosure sales.

The move is one of the steps mortgage insurers are taking to minimize their losses after seeing claims rise for the first time in decades. The insurance sold by Genworth and its main rival, Canada Mortgage and Housing Corp., compensates banks when homeowners default. The majority of it is backstopped by the federal government.

Genworth previously relied on the bank that made the mortgage loan to take the property through to foreclosure. Now, its internal agents help to sell houses sooner, and for a higher price. They’re using basic techniques such as fixing up houses with fresh paint and hosting open houses.

They’re also staging houses to make them more attractive, and making it less obvious that they are foreclosure sales, said Paul Holden, an analyst at CIBC World Markets.

And it’s paying off, according to Genworth chief executive officer Brian Hurley.

“This much more active role we’re taking by hiring our own realtors in house has certainly helped mitigate our losses and has been very effective,” Mr. Hurley told analysts at a conference on Wednesday.

He pointed to the Calgary market, where a large chunk of Genworth’s 2011 losses were coming from. Mortgage delinquency rates in Alberta have been declining since the middle of last year but remain double the national average because Calgary’s housing market took the hardest hit during the recession. Unemployment doubled and home prices in the city dropped by 15 to 20 per cent, a spokeswoman for Genworth noted.

Before a home hits the point of being foreclosed on, Genworth works with the bank that holds the mortgage and will tend to forgive the borrower for a few months of missed payments. If there’s a longer period of unemployment or hardship, Genworth and the lender will look at tacking missed payments on to the back of the mortgage, Mr. Hurley said.

But if it’s clear that the borrower is going to default, Genworth takes ownership of the property earlier in the process to cut its losses. The company is responsible for interest that accumulates and maintenance that must take place during the time the borrower can’t pay. It now has 13 people dedicated to its new internal realty team.

“[If] we know it’s going to go to claim and we know we can’t remedy the borrower to keep them in their home, we’re taking those properties much earlier and we’re much more active,” Mr. Hurley said.

Genworth’s policies required banks to notify it within 90 days if a customer was delinquent, but it is now asking banks to let it know after about a month. “The earlier we can touch them, the better our success of keeping that individual in their home,” Mr. Hurley said.

Lenders have been more willing to forgive a couple of missed mortgage payments since the financial crisis hit.

“In general in the industry we really weren’t realizing any significant level of losses up until the last few years, at least not since the early 1990s,” Mr. Hurley said.

Losses and foreclosures remain relatively low. The number of delinquent mortgages for Genworth was 2,752 at the end of 2011, down from 3,401 at the end of 2010, Mr. Holden said. “I estimate that they handled approximately 3,500 foreclosures in 2011,” he said.

That number will likely be lower this year because of the reduction in delinquencies.

Genworth has done a good job mitigating the number of delinquencies by offering homeowners flexibility on missed payments. Now it’s trying to tackle the amount that it winds up paying on claims, Mr. Holden said. The average paid claim in the fourth quarter had risen to $80,500 from $71,000 two years ago. Genworth is hoping to cut this number back down by selling foreclosed homes faster and getting more for them, Mr. Holden said.

Genworth’s losses on claims were $62-million in the fourth quarter, $11-million higher than the same period a year earlier.

Mr. Hurley said Genworth’s stress tests suggest it could withstand either a 40-per-cent drop in home prices or a sharp spike in unemployment before its insurance business became unprofitable. But if a 25-per-cent drop in house prices were coupled with a prolonged increase in unemployment into double-digit levels, it would affect profitability, he said.

Penalty Calculation: Interest Rate Differentials (IRD)

Often a client needs an “idea” of how much their existing mortgage penalty might be before he decides to refinance or do an “early switch” with pre-payment penalty.

If the penalty is based on a rate differential, here is a BASIC calculation to figure out a close amount…..

Based on a:

$200,000 with 3 years remaining on a 5 year term of 5.70%....

…because there are 3 years remaining, the current 3 year rate is used to calculate the differential.

If the Merix current 3 year rate is 4%, there is a difference of 1.7%. Because there’s still 3 years left, the principal is also multiplied by 3

$200,000 x 1.7% x 3 = $10,200 penalty

(remaining principle) (Difference btw rates) (# yrs remaining)

**This is an estimate and will change every time rates change. If the differential increases, the penalty will also increase.

Housing cools as sellers hold back

steve ladurantaye

From Thursday's Globe and Mail

The hot housing market that powered the country's post-recession recovery is slowing to a crawl.

The Canadian Real Estate Association said sales dropped and prices moderated in January, with the weakness spread among more than half of the country's cities. Sales in Vancouver and Toronto slowed to a crawl, with few houses available to would-be buyers.

The low number of listings means there could be a rush of sellers trying to capitalize on the spring market, keeping a lid on the bidding wars that have driven prices sharply higher in some of the country's largest markets.

“There is really a lack of product,” said Phil Soper, president of Brookfield Residential Real Estate Services, which operates Royal LePage. “We expect that to pick up considerably, and by the end of March Break you'll really be able to gauge the Canadian market's health. Or lack of health.”

Canada's sizzling property market has made headlines around the world, and so far defied some predictions that it's a debt-fuelled bubble bound to pop. Forecasts for home prices for the next several years vary wildly – with economists and analysts predicting everything from a 25 per cent drop to modest gains.

The latest figures suggest a levelling off. Home sales across the country were down 4.5 per cent in January from December, the sharpest monthly decline since July, 2010.

Average prices were 2 per cent higher than a year ago at $348,178, the smallest year-over-year increase in the past year.

It's not the first sign that the much-talked-about slowdown may have arrived.

The Teranet-National Bank index, an alternative measure of price gains that lags CREA by several months, showed prices dipped 0.2 per cent in November, marking the first drop since the fall of 2010.

In Toronto, the bidding wars have largely given way to a market where houses sit longer and sell for closer to their asking price, said Richard Silver, president of the Toronto Real Estate Board. But hot neighbourhoods continue to fetch top dollar, especially considering the lack of listings.

Matthew Slutsky, chief executive officer of real estate site BuzzBuzzHome.com, has been trying to buy a house in one downtown neighbourhood for months. Along with his wife Carlie Brand, he's been popping letters in mailboxes imploring their owners to consider a sale.

“I really hope it's the calm before the storm and more listings pop up,” he said. “Right now it feels like we are auditioning for a house, and I don't know if I want to wait and see what happens in the spring.”

There's been a sense of unease surrounding Canada's housing market for more than a year. The federal government tightened its mortgage qualification requirements to try to prevent buyers from taking on too much debt in a low-interest-rate environment, and the Bank of Canada has issued a steady stream of warnings about high levels of household debt.

The fear is that rates will rise as the economy improves, and many people who could afford their house when interest rates were low may find those same houses unaffordable as rates rise. Financial turmoil in Europe also has many market watchers concerned, with any default in Greece expected to have ripple effects around the world.

Lenders such as Gerry Soloway, CEO of Home Capital Corp., have cautiously tightened their lending standards in recent months as the economy wobbled. But he doesn't see prices crashing any time soon, even if things slow down considerably.

“I just don't see the catalyst for a big price drop,” he said.

It's a theory echoed by Ross McCredie, CEO of Sotheby's International Realty Canada, who recently had 16 buyers check out a $2.5-million home in Toronto.

“We are finding if the home is priced right and a quality home, it is moving fairly quick,” he said. “Too many people who are listing are expecting prices well above the market. We are spending a lot of time with our agents to ensure we are only taking on listings at the right price.”

Bank Of Canada rate and Major banks on Mortgage

Bank of Canada maintains overnight rate target at 1 per cent

On March 8 Bank of Canada announced the overnight rate at 1%. That brings the Prime rate which is banks lending rate to 3%.

readmore

BMO Offer 2.99%

The new 5 years Fix is offered by March 28.

Amortization is 25 years.

The prepayment option 10%+10%

Full repayment is only possible if property is SOLD or refinanced by BMO. Read more

Competion Major Banks Offer

Following BMO’s offer some banks starting to offer the same rate at 2.99% for 4 years but not with the limitations of BMO. Read more

BC’s First Time Home Buyers Credit

If you purchase your fist home in 2012 you are eligible for $10,000 tax credit. Read more

HST UPDATE

As of April 1, 2013 we will be back to PST. As of April 1, 2012 the HST rebates are increasing as theh treshhold is up to 850,000 and the total rebate is 42,000. Read more

Canada housing prices won’t crash: poll

Reuters Feb 21, 2012 – 11:53 AM ET | Last Updated: Feb 21, 2012 11:54 AM ET

By Louise Egan

OTTAWA — Canada’s government will make it tougher for many homebuyers to get mortgages this year as it grapples with an overheated property market, according to analysts in a Reuters poll, who also ruled out the prospect that prices could suddenly crash.

Ten of 14 economists and strategists surveyed last week in Reuters’ first poll on the Canadian housing sector answered “yes” when asked if they thought Ottawa would tighten mortgage rules within the next 12 months.

They expect home prices to climb just 0.1% in the year to December 2012, and the same in 2013. That is down from a 0.9% year-on-year increase in December 2011.

If Finance Minister Jim Flaherty tightens requirements for government-backed insured mortgages it would be his fourth intervention in the real estate market since 2008.

Flaherty could raise the minimum down payment to buy a home from the current 5% or reduce the maximum amortization period from 30 years.

Any move would likely come before the prime spring real estate season, analysts said. “Sometime between now and the next budget,” said Benoit Durocher, senior economist at Desjardins in Montreal, on the timing of such a move.

The budget is expected in late March.

The poll respondents see the housing market as moderately overvalued, particularly in Toronto and Vancouver.

“There is some genuine concern that the housing market and households have been overstretched,” said Mazen Issa, economist at TD Securities.

“But in the absence of several triggers for a housing market decline, which are not likely to be forthcoming until at least the middle of next year, the underlying theme is of gradual moderation,” he said.

Possible triggers would be a rise in mortgage rates or a sharp rise in unemployment.

Canada’s robust housing market helped pull the economy out of the 2008 recession. Prices dipped briefly during the downturn, but quickly resumed the climb that characterized the previous decade.

But that effervescence is now a headache for policymakers, as historically low interest rates tempt more and more people to take out mortgages for increasingly unaffordable homes.

Household debt levels are approaching those in the United States before the 2008-09 housing meltdown there. Canada’s debt-to-income ratio hit a record 153% last year and is expected to rise.

The Bank of Canada, which has fanned the flames by holding its benchmark lending rate at 1% for an unprecedented 17 months, has made it clear that rates are likely to stay unchanged for at least this year. Of the nine forecasters who answered a question on how far prices would fall before stabilizing, the median decline was 5%, with four predicting price stabilizing beyond 2013.

The economists see a moderation in housing starts to 190,000 units in the first quarter of 2012 compared with a seasonally-adjusted annualized rate of 197,900 units in January. Housing starts should ease to 181,000 by the second quarter.

Analysts said housing prices have strayed from fundamentals but not in an extreme way, placing them as a “seven” on a scale of one to 10, with five being fairly valued and 10 being extremely overvalued.

But the national average is skewed by extremes in Toronto and Vancouver, where foreign investment has helped push up prices. Excluding these centers, Durocher rated prices as a “five” on the scale.

Doug Porter, deputy chief economist at BMO Capital Markets, agreed. “I would say aside from those two cities, there’s really little evidence whatsoever that the market has gotten ahead of itself,” Porter said. “Whatever strength we’ve seen in most cities has simply been the flip side of the decline in borrowing costs. Provided we don’t get hit with an interest rate shock, then I think the market can adjust to a moderate back-up in rates over time.”

Vancouver prices have already started sliding. The outlook of the half-dozen analysts who ventured a forecast on that city was for a 3% drop this year and 4.8% fall in 2013.

In Toronto, where the activity ramped up later, prices are seen edging up 0.3% this year before falling 2% next year.