Chapter 7: Insurance in the Mortgage Industry

July 17, 2023

By enabling lenders to make loans in excess of 80% loan to value and recover insured losses by making a claim to the insurer, thereby ensuring the stability of the banking sector.
By enabling borrowers to receive high ratio mortgages with favourable terms and favourable interest rates

Enables borrowers to obtain higher LTV mortgages with competitive rates and terms from chartered banks

The lender, who then charges the borrower the same amount as the premium it paid to the insurer

Because it pays the lender if the borrower defaults and the lender suffers a loss, it prevents lenders from losing money on high ratio mortgages

The borrower: Provides coverage against fraud and forgery from the time the policy is in force.
The lender: Provides coverage against title defects and items that occurred before closing that may make the property unmarketable
The real estate lawyer: Reduces the amount of work required to close a mortgage transaction

Contents insurance since the master policy only covers the unit, not the contents.

The first title insurance company, the Law Property Assurance and Trust Society, was formed in Pennsylvania in 1853. Title Insurance was developed in the United States and until the early 1990s was not available in Canada. Virtually all real estate transactions in the United States currently carry title insurance, while its popularity is continuing to grow in Canada.

	Mortgage Creditor Insurance	Term Life Insurance
Underwriting	Post-underwritten	Pre-underwritten
Convenience	Quick and easy to qualify	May require medical investigation, lengthening the process
Portability	None	Independent of a lender
Premiums	Level	Level
Amount of Initial Coverage	Determined by the amount of the mortgage	Determined by the insured
Protection on default/illness	If the borrower defaults or cannot make their mortgage payment, the insurance will cease as the insurance is tied to the mortgage payment	As long as the insured can pay the insurance premium, the insurance will continue, regardless of whether the mortgage payment cannot be made.
Amount of Continuing Coverage	Decreases	Constant
Expiry	When the mortgage is paid or upon transfer to a new lender	At the end of the term
Beneficiaries	Lender	Named by the insured
Number of Death Benefits	One, the outstanding balance of the mortgage	If two homeowners are insured and there is a common disaster where both are killed, two death benefits are paid.
Speed of Claim Payment	Can take up to several months due to insurer investigation	Paid within days

The broker would have to pay to defend themselves and pay any successful judgment against them

A program that can assist real estate salespersons to sell homes that need immediate repairs that buyers might not otherwise be interested in purchasing.

Both CMHC and Sagen provide mortgage default management programs that are designed to assist borrowers who get into financial difficulty and have trouble making their scheduled mortgage payments.

For a borrower who has little or no equity in the property, but who has stable income and can demonstrate the ability to repay the outstanding mortgage balance and capitalized amount over the remaining amortization period. Permits the borrower to add arrears of Principal and Interest, unpaid taxes, utility bills, property repair costs to protect the security, and other outstanding charges and arrears which become payable as part of a claim.
The Approved Lender can approve and implement this option up to a total maximum capitalized amount of $20,000 subject to a documented and substantiated workout analysis. For amounts over $20,000, CMHC authorization is required. Capitalization is a technique of last resort and should be used only once during the life of the loan.