Finance Committee on May 29th, 2006

[Andy Charles]

I think any time you introduce more competition into the market, Mr. Savage, you are going to see that we need to compete on a platform. The platform on which we are going to compete, as I said earlier, is both urban and rural, right across the country, on the majority, up and down the street, for Canadian consumers.

In addition, we think there are niches that we can add value to that will increase the level of home ownership. I'd also keep in mind that this is a very heavily regulated industry, and nothing replaces that heavy regulatory oversight, nothing replaces the due diligence by the lender and the due diligence done by the insurer.

[The Chair, Conservative, Brian Pallister]

Thank you.

You're out of time, Mr. Savage.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

The main concern with respect to competition is about prices. You have talked a lot about products but it all strikes me as being rather theoretical. I know people who recently bought a house and I'm thinking of doing the same thing myself. We have talked about many things such as which bank to deal with and where to buy. However, in terms of mortgage insurance, nobody has spoken to us about after sales service, etc.

The most important point... [technical difficulties] ... allowing new competitors could truly change the selection process and give more people access. Is it not the banks and the credit unions that are mainly responsible for selection? Thus, once a borrower has made it through that stage, he almost automatically find an insurer to guarantee the mortgage.

[The Chair, Conservative, Brian Pallister]

We're redirecting the question to Mr. St-Cyr.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I would like to hear Mr. Vukanovich's opinion as well as that of other people interested in coming on to the market. I also have a question for Mr. Roy.

[The Chair, Conservative, Brian Pallister]

Thank you, sir.

Mr. Vukanovich, would you care to respond?

[Peter Vukanovich]

Mr. St-Cyr, I want to make sure I understand your question. Is it about whether or not new entrants could make a difference, or is it more specifically that you don't think consumers will necessarily benefit? I'm not a hundred percent sure, I apologize.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Will a new competitor really make a difference on the ability of people to have a mortgage?

[Peter Vukanovich]

I think there's been tremendous competition going on in the marketplace today between us and the existing player. We're in 16 countries around the world and we're very familiar with the mortgage products. That's where we get our ideas from, and we bring them to Canada. I'm not saying we have a lock on all of the ideas, but I don't think.... I mean, we've talked a little bit about Canada's home-ownership rate. We are the second-highest country for home ownership in the world, next to the United States, and that is in the absence of $92 billion of tax incentives, of mortgage deductibility, in the United States.

So we're doing pretty darn good here with regard to people owning a home in Canada.

[Mark Tonnesen]

Perhaps I could just outline a few of these items as we see them.

Number one is that we think cost structures for mortgage insurance can be customized better than they are today for borrowers--for instance, standard annual premiums that would allow larger amounts to be paid by the borrowers; single premiums; monthly premiums; deferred monthly premiums; lender-paid mortgage insurance; lender-paid singles. These are the types of products that could become available. One of the things we would have to do in order to do that is work with the financial institutions to try to broaden their product lines, and that would be our intention.

We think making home ownership a greater reality for more Canadians is still possible despite the facts that have just been laid out for both lower- and middle-income earners. We think there's the opportunity for increased loan-to-value options, expanded term options, and loan-type options.

Finally, we believe the consumers can also benefit by increased convenience in service. InterBase mortgage insurance applications can be improved in Canada, as well as the information that's provided to consumers through the Internet or other sources about the type of coverage that these products provide.

So we think that as we begin to work with the lenders and consumers in Canada, we will find ways to compete. Absent that, it is our complete understanding that we will not be competitive and therefore not be able to participate in the Canadian market.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you.

Mr. Roy, in your presentation, you stated the following:

All participants from the private sector offering mortgage insurance must be subject to the same rules and conditions and must be only allowed to intervene in this particular market.

What exactly do you mean?

[Noël Roy]

We want to make sure that participants offering mortgage insurance on the market not become lenders at a later stage.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Fine. You don't want them to compete with you?

[Noël Roy]

More or less. In reality, when we insure loans, we provide all our information on the borrowers to the insurers. They are therefore privy to confidential information and if they started providing loans, then there would not be fair competition.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

They do participate in other insurance markets, but you do not want them to compete with you for loans.

[Noël Roy]

I would have something to add.

[The Chair, Conservative, Brian Pallister]

I'm sorry, sir.

We have time for a very brief response, and then we'll go to our next question.

[Noël Roy]

I have several questions about the benefit to consumers.

Let's take two products as an example. The CMHC currently provides the insurance for the rental market whereas Genworth doesn't. From the lenders perspective, the CMHC ensures the rental market, and the borrowers get a better rate if they are insured. However, the CMHC did not want to develop a shared-risk product. Genworth did, and borrowers benefited from a 40 per cent decrease in their premiums. Some lenders have used those initiatives and it is the consumers who have benefited from them in the end.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

That is a good example.

[The Chair, Conservative, Brian Pallister]

Mr. Dykstra, for five minutes.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair.

I'm going to certainly thank the gentlemen for being here today and jump right into some questions.

Mr. Vukanovich, one of the things you spoke to fairly well is the process that you were involved in or the system upon which you entered into the market. You seem to be concerned about moving forward with respect to regulations and how the system would work now.

Could you clarify for me, if the system the minister implemented were to be different from the one that you came in under.... I'm assuming you thought the one you came in under was a pretty rigorous and fulsome regulatory process.

[Peter Vukanovich]

Yes.

[Rick Dykstra, Conservative, St. Catharines, ON]

If we were to use that same process to advance--of course we're not going back in time, we're moving forward--that's the type of rigorous process you're talking about implementing.

[Peter Vukanovich]

That would be part of it. As I mentioned earlier, a lot has changed since 1995. We've seen a lot of other markets grow and expand but also run into some issues with regard to the way competition has occurred and been dealt with.

To doubly repeat, we're not saying that we don't believe in more competition. I think that when you have a government employer, and then you have one private sector player come in, you have one kind of conduct. But having three or four or six private sector players come in is a significant change in the way lenders would be purchasing a product. Again, there needs to be some market conduct, some ability to ensure compliance with rules. Right now, those rules are just not there.

[Rick Dykstra, Conservative, St. Catharines, ON]

Okay.

To pick up on that, actually, Mr. Charles, you make a couple of points. In the second-last paragraph of your presentation you say, “We ask for the same opportunity”. I just wanted to relate that to the second page, and this picks up on Mr. Vukanovich's point about the “rigorous examination process” you point to. Could you take me through that a little bit? I'm not sure of the process that any of you would be going through at the present time.