Genworth MI Canada Inc. , the country's largest private sector mortgage insurer, has set up its own internal group of real estate agents to deal with foreclosure sales.
The move is one of the steps mortgage insurers are taking to minimize their losses after seeing claims rise for the first time in decades. The insurance sold by Genworth and its main rival, Canada Mortgage and Housing Corp., compensates banks when homeowners default. The majority of it is backstopped by the federal government.
Genworth previously relied on the bank that made the mortgage loan to take the property through to foreclosure. Now, its internal agents help to sell houses sooner, and for a higher price. They're using basic techniques such as fixing up houses with fresh paint and hosting open houses.
They're also staging houses to make them more attractive, and making it less obvious that they are foreclosure sales, said Paul Holden, an analyst at CIBC World Markets.
And it's paying off, according to Genworth chief executive officer Brian Hurley.
"This much more active role we're taking by hiring our own realtors in house has certainly helped mitigate our losses and has been very effective," Mr. Hurley told analysts at a conference on Wednesday.
He pointed to the Calgary market, where a large chunk of Genworth's 2011 losses were coming from. Mortgage delinquency rates in Alberta have been declining since the middle of last year but remain double the national average because Calgary's housing market took the hardest hit during the recession. Unemployment doubled and home prices in the city dropped by 15 to 20 per cent, a spokeswoman for Genworth noted.
Before a home hits the point of being foreclosed on, Genworth works with the bank that holds the mortgage and will tend to forgive the borrower for a few months of missed payments. If there's a longer period of unemployment or hardship, Genworth and the lender will look at tacking missed payments on to the back of the mortgage, Mr. Hurley said.
But if it's clear that the borrower is going to default, Genworth takes ownership of the property earlier in the process to cut its losses. The company is responsible for interest that accumulates and maintenance that must take place during the time the borrower can't pay. It now has 13 people dedicated to its new internal realty team.
"[If]we know it's going to go to claim and we know we can't remedy the borrower to keep them in their home, we're taking those properties much earlier and we're much more active," Mr. Hurley said.
Genworth's policies required banks to notify it within 90 days if a customer was delinquent, but it is now asking banks to let it know after about a month. "The earlier we can touch them, the better our success of keeping that individual in their home," Mr. Hurley said.
Lenders have been more willing to forgive a couple of missed mortgage payments since the financial crisis hit.
"In general in the industry we really weren't realizing any significant level of losses up until the last few years, at least not since the early 1990s," Mr. Hurley said.
Losses and foreclosures remain relatively low. The number of delinquent mortgages for Genworth was 2,752 at the end of 2011, down from 3,401 at the end of 2010, Mr. Holden said. "I estimate that they handled approximately 3,500 foreclosures in 2011," he said.
That number will likely be lower this year because of the reduction in delinquencies.
Genworth has done a good job mitigating the number of delinquencies by offering homeowners flexibility on missed payments. Now it's trying to tackle the amount that it winds up paying on claims, Mr. Holden said. The average paid claim in the fourth quarter had risen to $80,500 from $71,000 two years ago. Genworth is hoping to cut this number back down by selling foreclosed homes faster and getting more for them, Mr. Holden said.
Genworth's losses on claims were $62-million in the fourth quarter, $11-million higher than the same period a year earlier.
Mr. Hurley said Genworth's stress tests suggest it could withstand either a 40-per-cent drop in home prices or a sharp spike in unemployment before its insurance business became unprofitable. But if a 25-per-cent drop in house prices were coupled with a prolonged increase in unemployment into double-digit levels, it would affect profitability, he said.