Finance Committee on May 29th, 2006

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

How could we avoid adverse selection? That's the question. Do the other witnesses have any suggestions?

[Noël Roy]

I could give you Desjardins's example. We are present throughout Quebec, including in the rural regions. The CMHC used to ensure all our loans. In 2000, when we signed an agreement with Genworth, we required that they ensure the loans in all of Quebec's regions, and we made sure that that condition was met. The lender can control that and you could include a clause in the bill providing for that. If Genworth had started practising adverse selection, then we would have stopped doing business with them. That was one of our conditions, and to date they have met that condition.

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

Do you think that including such a condition in the legislation would give it more teeth?

[Noël Roy]

It would give it more teeth.

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

Fine. Thank you, Mr. Chairman.

[The Chair, Conservative, Brian Pallister]

Thank you.

Mr. Turner, seven minutes, sir.

[Garth Turner, Conservative, Halton, ON]

Thank you.

Welcome.

First, I'm really delighted that John McCallum reads my blog. I think this is real progress, absolutely.

And on that note, just while we're on relationships, Andy, how long have we known each other?

[Andy Charles]

Seven to eight years.

[Garth Turner, Conservative, Halton, ON]

Seven to eight years. So a professional relationship. We've dealt quite a bit in the past.

[Andy Charles]

Yes, sir.

[Garth Turner, Conservative, Halton, ON]

Okay, so I just want to make it clear that two of the witnesses at least I know very well. And Jim, I think we've been acquainted as well, so we certainly have dealt professionally in the past.

Now, one of the reasons we're here.... Mr. McCallum has suggested that maybe it's because of my relationship with some of the witnesses. I'd like to just point this out. I think we're here because today, with the real estate market where we are in this country, and with real estate prices hitting the highest ever.... And now with 50% of all the people taking out mortgages in this country having to take out high-ratio mortgages, they are involved in the necessity to get mortgage insurance. That's probably 90% of the people in my riding right now who are buying new homes. They are probably requiring mortgage insurance. Because the Government of Canada, by law, requires that all these people with high-ratio mortgages have to take mortgage insurance, this is an important issue.

That's why I'm here and that's why I tried to get this committee to understand that, and they did in a heartbeat.

So you're here because of these issues. These issues go to the matter of the consumers. And that's what I really want to focus on--not their side and our side, or where the government is at; I just truly want to try to drill down right now to what's going to be in the best interests of consumers.

Certainly Mr. Charles and Mr. Vukanovich have different views of this, and Mr. Murphy, you're somewhat in the middle of it.

I would ask you specifically, Mr. Charles, to address a couple of the concerns, and then Mr. Vukanovich the other way around.

Mr. Charles, let's talk about these two concerns that Mr. Vukanovich is raising. First, are we going to see U.S.-style inducements if we allow more competition into the industry? In other words, will there be kickbacks or premiums of some kind paid back to the financial institution for giving you the insurance business?

And secondly, what stops you from just going after those high-income people in my riding, as opposed to the poor folks in some other poorer community? Can you answer that first for me, please?

[Andy Charles]

Mr. Turner, in terms of the first question, as a Canadian with 15 years of experience in the Canadian mortgage market, leading a Canadian team, hiring Canadians across the country, and having some degree of expertise in the Canadian market, we will operate with the highest ethical standards and we'll operate right across this country by providing value to consumers.

Inasmuch as increased competition puts pressure on things like price and premiums, that will certainly be part of our toolbox to help more Canadians realize the dream of home ownership.

So this is a Canadian business, run by Canadians. The answer is no.

[Garth Turner, Conservative, Halton, ON]

And how about those people who may be a poor credit risk or who are in rural areas where home values are not escalating as rapidly as they have been in other parts of the country? How do you deal with those criticisms?

[Andy Charles]

Mr. Turner, as a third player coming into the marketplace, we need to look at where our competition is not. We need to be a full service provider coast to coast, operating right across this country.

We've looked at a number of market opportunities in addition to being a full service provider, competing head to head with our competitors, but we're going to look also at the new immigrant market, we're going to look at the self-employed market. We're also going to be able to develop innovative programs for Canadians who can afford a home but for some reason in their past may have had a credit impairment that they have now clearly overcome. So we want to run the full spectrum of service.

[Garth Turner, Conservative, Halton, ON]

All right, Mr. Vukanovich, you've heard what Mr. Charles has to say. Now, how do you counter that? On this last point, are these parts of the market that you guys are now ignoring?

[Peter Vukanovich]

Mr. Turner, we have introduced the products in 2006 to address exactly the segments of the marketplace that Mr. Charles just mentioned, whether it's people new to Canada, whether it's people with less than perfect credit, or whether it's people in business for themselves. Those are all products that we've launched.

I think there are always opportunities to make a broader, better product.

I think also there is a level of agreement here--that is, if there is to be no adverse selection and there is to be a 100% level playing field and there are to be safeguards in place to prevent inducements, then let's just make sure they're there.

If Mr. Charles and his company and other competitors are willing to compete on that basis, all I'm saying is make sure that's in the legislation before they enter the marketplace.

[Garth Turner, Conservative, Halton, ON]

On the issue of stability in the marketplace, once again, half of all buyers today are forced to take mortgage insurance. Many would argue that people are over-extending themselves to buy new homes today, and we've never seen the level of mortgage debt in Canada approach what we see today. We've never seen so much consumer debt as exists right now. Some people say it's a time bomb.

I want to hear from both of you. In allowing more competition in the marketplace, is there any danger here of destabilizing what is now a stable marketplace?

[The Chair, Conservative, Brian Pallister]

Mr. Charles, I'll ask you to answer in about 40 seconds, if you can do that.

[Andy Charles]

Introducing another well-capitalized mortgage insurer into a marketplace that is the size of Canada, the second-largest mortgage default market in the world, does not represent a disruption at all.

As a case in point, our current competitors, Genworth and CMHC, each have a market share of at least 30% and 70% respectively. Our market share objectives are very modest. We're going to have to fight, work hard, and be innovative to gain any traction against two well-established competitors.

[Peter Vukanovich]

Mr. Turner, on your question about whether the housing market is a calamity about to happen, we don't subscribe to that at all. We don't think this about a new competitor coming in as long as it's capitalized properly, which is a very important thing that OSFI would need to look after. But at the same time, it needs to be studied.

The safeguards I mentioned earlier and the level playing field will make sure we have a viable, long-term, and competitive marketplace that benefits homebuyers.

[The Chair, Conservative, Brian Pallister]

Thank you very much, sir.

Madam Wasylycia-Leis is next, please, for seven minutes.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you, Mr. Chairperson.

First I want to thank John McCallum for reminding us why we're here--that is, the Conservatives are just trying to emulate the Liberals every chance they get. It's increasingly hard to tell the difference. I also think it's worth while to try to put this in context.

When did this whole area get opened up by the Liberals? If I'm not mistaken, it was in 1995. Nobody knows why exactly, except that Paul Martin was Minister of Finance at the time and decided it would be important to give some business to the private sector that wasn't otherwise in their hands. I think Genworth was the lucky recipient. Maybe the question that should be asked today is what do Paul Martin and Peter Vukanovich have in common?

I'm interested in this whole question of how this is going to open up competition. I'm surprised that Yvon Loubier is getting caught up in this as well. If we all look back and see what has happened in areas where deregulation has occurred, and how consumers were going to benefit from all this competition, I don't think we have to look any further than Air Canada. If anyone can tell me how we're better off today with all this competition, please let me know. We're now down to no meals and very poor service, in many cases. I'm just not sure what the benefits are on that front.

I'd like all of you to explain to me what's going to happen to consumers who are at the low end of the income scale to begin with, because we're looking at those who don't have the down payments and need mortgage insurance. I haven't heard of any study that says there is some problem with thousands and thousands of Canadians not being able to access mortgage insurance. I haven't heard people say this is too expensive and out of reach.

I need to hear what studies exist that show that consumers are not being served now. I'd like to know from each one of you--all of those people who want a piece of the pie--how much cheaper you're going to offer mortgage insurance than is the case now, and who you're going to cover who isn't covered now.

[The Chair, Conservative, Brian Pallister]

Who would like to start off and respond to that?

Mr. Vukanovich.

[Peter Vukanovich]

Thank you very much for your questions.

I'd like to give you a little bit of background on the origins of our company. We started in 1995, but the private sector has been a player in the mortgage insurance market since the early 1960s. Four companies got into the competition, which included CMHC at the time, and they all consolidated by the end of the 1960s, early 1970s, into one company called the Mortgage Insurance Company of Canada. As a result of the competition that had gone on and the volatile real estate cycles, the marketplace was not large enough to support more than the two companies.

In the early 1990s, the Mortgage Insurance Company of Canada exited the marketplace and left CMHC as the monopoly player. So when GE Genworth, now Genworth, came into the marketplace, it was because the government wanted to have more competition.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

What happened, Mr. Vukanovich? What happened? Did it get better? Did something happen where Canadians who weren't able to access it were now able to access mortgage insurance?