Finance Committee on May 29th, 2006

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Yes, the people who can't get insurance otherwise, that the private sector will be interested in times when the market is going to go down. I understand you're in for the long haul, but your company, I'm sure, generates profits, and the rate of return is going to be important whether you're going to insure someone or not. So how do we make sure that you continue to insure people in the down market and also insure people who may not have the capacity to pay or who you feel do not have the capacity to pay?

[David Liu]

We have a focus on the long term for the business, as well as the individual borrower and the lending community.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

All that is based on a return. You want to make sure that your—

[David Liu]

That is one factor in the equation, of course. But we have a commitment to serve communities, home buyers, across all segments of the marketplace.

To circle back to Ms. Wasylycia-Leis's earlier comments, I'd like to point out that PMI has a pretty extensive record of serving underserved communities in the United States, as well as other countries, where we are long established.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Sorry to interrupt, but the time is limited. Are you obligated in those markets, or do you do it on your own initiative or free will?

[David Liu]

No. We serve markets because we want to serve markets. That includes the native American markets as well. You'll see that we have extensive experience in serving the native American population with creative and innovative products. I expect that we could find ways to help in Canada as well.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you.

Thank you, Mr. Chair.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Pacetti.

Mr. Loubier, you asked for a little time.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Mr. Chairman.

I would like to put a question to Ms. Kinsley, but others may answer as well. I've noticed that the mortgage insurance market is extremely profitable. Genworth's net profit for the year 2004 was $200 million. CMHC, despite the fact that it has to shoulder more risk than Genworth does, made $513 million in profit in 2002, $602 million in 2003, $875 million in 2004, and accumulated a surplus of $4.5 billion for its overall operations.

If you simply look at the $875 million in profits for the CMHC in 2004, minus the government's guarantee, and you compare that to the $200 million in profits for Genworth, you can see that approximately 70 per cent of the profits in that sector belong to the CMHC. Despite the risks that the CMHC shoulders year after year, its profits are comparable to those of Genworth's. That mans $200 million in profits for Genworth and $875 million in profits for the CMHC in 2004. That is very profitable! There is a rule in micro-economics whereby where there are profits to be made in a particular sector, there are other businesses willing to participate. I think that despite all the risks that this sector involves, it is still extremely lucrative, even for the CMHC.

Why would the fact that other competitors want to enter the market place and compete with Genworth — that makes $200 million in profits per year — and the CMHC, be a problem? This Crown corporation made $875 million in profit when the products for this market should normally be supplied by the private sector, especially given the fact that the $4.5 billion surplus will never go back to the corporation. In fact, that money has often been claimed for funding social housing. It should be the private sector's role to invest that money back into this sector so that everyone democratically benefits from the profits. Ms. Wasylycia-Leis should be aware of this democratic issue. Why should the only two players get all the billion dollars in profits every year, when those profits could be shared amongst various players who might offer much better products? I'm asking the question. Why not let other players compete? If you take into account efficiency, service to consumers, and democracy — that is so dear to the NDP — it might be worth having other players to better serve consumers and better spread the profits.

[The Chair, Conservative, Brian Pallister]

And to whom did you wish to direct that question, Mr. Loubier?

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

That was a comment; I wanted to tell our guests about this analysis. I see Mr. Kenward smiling broadly. Perhaps he would care to make a comment.

[The Chair, Conservative, Brian Pallister]

Mr. Kenward, I don't wish to put you on the spot, sir.

[John Kenward]

Mr. Chairman, I think I'm going to avoid this. I must say I found it interesting thinking. I would like to just take a brief moment. One of the members did mention the concern about prior analysis and consultations on this entire matter, and that is something that has concerned the Canadian Home Builders' Association. There really ought to have been more analysis and consultation on this subject.

Though we're certainly not suggesting that this decision be delayed, we do believe that sufficiently serious issues have been placed before this committee, and that they should remain on the table for further analysis to ensure that they are addressed by the government, as I put it, over time. This should not just be left alone.

Thank you, Mr. Chairman.

[The Chair, Conservative, Brian Pallister]

Thank you.

Mr. Del Mastro, it is your time, sir, for a final brief round of questioning.

[Dean Del Mastro, Conservative, Peterborough, ON]

Certainly. Thank you, and thank you to everyone for the presentations today.

We've heard a little bit about gaps in the marketplace and areas that aren't currently serviced or may be less serviced than others. I have two specific questions, one pertaining to small business and the acquisition of commercial property and whether some private companies would be interested in making mortgage insurance commitments in that area, and the other pertaining to agricultural property where currently CMHC has some very strict guidelines. I believe it's a house and six acres which they will consider for mortgage insurance.

I'm wondering if private insurers would actually ensure that the banks could consider the entire property in the case of agriculture, or whether anybody has packages like that. Mr. Liu, I'd like to hear particularly from you on that.

[David Liu]

Sure. Our business is focused on the residential aspect of mortgage insurance. Where there are aspects of mixed use properties that can be attributed to residential value, we clearly look for those opportunities, and within the Canadian marketplace we will also be looking for those types of opportunities.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

Ms. Adams, I have a question for you. You've indicated that you would pass savings along to the consumer if there were savings on rates. Is part of the reason you would be behind more competition in the market that you believe there would be some room for these fees to be reduced?

[Catherine Adams]

Yes, I do. I think when you have this much interest in this marketplace, the implication is that there is some room for rates to move down, and that more competition will improve pricing. I can't guarantee it, but that would be my suspicion.

[Dean Del Mastro, Conservative, Peterborough, ON]

I have a question for Mr. Kenward.

You've indicated that you're very concerned that there could be kickbacks between the mortgage insurers and the banks, and that you would be fully opposed to that. I'm just curious, because I know the home builders do receive referral fees from the banks when they send mortgages to the bank. It's a fairly seamless process. In fact, most of the home builders turn the referral into interest rate savings for the consumer. What they do is offer a preferential rate to the consumer by donating their bank referral towards the purchaser's mortgage.

I'm curious. Seeing as it exists in that area and it's invisible to the customer, why would you have a problem with it in the other area? I'm not advocating on behalf of the banks. I'm just suggesting that I find it's a double standard, and I'm wondering why you're advocating that.

[John Kenward]

Mr. Chairman, our concern is that the benefits of the mortgage insurance system continue to go to home purchasers. I think the first panel clearly said that the relationship is between the mortgage insurer and the lender. We just don't want to see what we call rebates, allowances, and so on going to lenders--

[Dean Del Mastro, Conservative, Peterborough, ON]

But you don't have a problem with them going to home builders?

[John Kenward]

As long as they go through to the home purchaser in the mortgage insurance system, that's fine by us. We just want to make sure that this system continues to do what it's been successful in doing, and that's benefiting homebuyers, particularly given that there's a government guarantee at stake. So we also assume that the government would be most interested in seeing that--

[Dean Del Mastro, Conservative, Peterborough, ON]

I'm not suggesting that we're in favour of it. I just found it kind of interesting that you would advocate specifically against it, when in fact home builders do receive referrals.

Ms. Adams, would you like to comment?

[Catherine Adams]

Yes, I would like to clear that up. As I said, we are the insured. We are the ones making the claims. The rules on insurance and the insured are pretty clear. They can't make inducements to us. It's illegal. So I don't think there'd be any kickbacks.

[Dean Del Mastro, Conservative, Peterborough, ON]

Good. Thank you.

I have nothing further.