CMHC announced this morning they will be increasing mortgage insurance premiums on March 17, 2017.
The changes are significant for those interested in mortgages with a 10-20% down-payment:
| Loan-to-Value Ratio | Standard Premium (Current) | Standard Premium (Effective March 17, 2017) |
|---|---|---|
| Up to and including 65% | 0.60% | 0.60% |
| Up to and including 75% | 0.75% | 1.70% |
| Up to and including 80% | 1.25% | 2.40% |
| Up to and including 85% | 1.80% | 2.80% |
| Up to and including 90% | 2.40% | 3.10% |
| Up to and including 95% | 3.60% | 4.00% |
| 90.01% to 95% – Non-Traditional Down Payment | 3.85% | 4.50% |
The changes were a result of the OFSI changing the capital holding requirements of mortgage insurance institutions in Canada (affecting CMHC, Genworth MI and Canada Guaranty) and I have telegraphed this well in advance in my previous analyses of Genworth MI.
It is quite probable that Genworth MI will follow suit and this will result in a substantial increase in premiums written for the company in the 2nd to 4th quarter of 2017. The market has not picked up on this at all.
Genworth announced new premium matching CMHC
http://genworth.q4web.com/English/home/details-iframe/2017/Genworth-Canada-Announces-New-Mortgage-Insurance-Premium-Rates/default.aspx
With 3 days to go, I don’t think the call options I written will get assigned – I would love selling it a couple of bucks from here as it would be close to tangible book. I have been in and out of it a number of times profitably past couple of years. I would consider it has probably more downside risk this time around as
* house prices seem to peak everywhere in Canada (except Ontario / Toronto)
* interest rate is up slightly and on a upward trajectory along
* a higher recession probability with a Trump’s potential protectionist policy – the last one will cause wide spread suffering in this country
What makes you believe that this downside risk hasn’t been already baked into the stock price? Eventually when the GNW issue resolves itself, when they’re trading below book as they are, a buyback becomes a complete no-brainer activity.
Good job shorting those call options. It’s too bad that getting trades done in the spread is nearly impossible on the horribly illiquid exchange.