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CMHC Raises Fees, Private Insurers Benefit

Last week when Finance Minister Jim Flaherty was agreeing with comments made by the IMF about CMHC, he said that the government-backed organization planned to raise its risk fee, although he wasn’t specific about just how much it would rise. Now, CMHC has made the announcement that their risk fee will be going up to 3.25 per cent – paid by the clients to the federal government – and one broker thinks that it’s the private insurers that will benefit in the time being.

“A lot of lenders aren’t signed up with Canada Guaranty and Genworth but those who are may benefit,” says Drew Donaldson of Verico Safebridge Financial. “Those who are signed up with all three would benefit if the two others hold off for a while because it’ll cost the client less so brokers would be more inclined to go with Genworth or Canada Guaranty.”

But those clients and brokers will only have a small window of time to do that, he says.

“From what I understand the independent insurers are holding off but I expect them to follow suit eventually,” he said. “I hope they don’t. I think it’s kind of a given that if CMHC does it the other two will follow suit; if CMHC is doing it, there’s no way they won’t. I’d like some other players to come into the market to create more competition.”

But those other insurers most definitely will raise their risk fees in time. After all, these are the same two organizations that asked CMHC to raise their premiums not that long ago, just in order so that they could do the same thing. In the meantime, says Donaldson, brokers and their clients have that short opportunity to cash in.

“Long-term everything will get straightened out,” he says. “But in the short term you may see some lenders and even some brokers benefiting by using Canada Guaranty or Genworth.”

What do you think? Would you go with the organization offering you the lowest risk fee? Or would you stick with the organization that has the strong backing of the federal government?

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