The document provides an overview of the Canadian mortgage insurance market. It discusses that mortgage insurance (MI) was developed to protect investors and increase housing affordability by allowing consumers to buy homes with lower down payments. The key characteristics of the Canadian MI market are that MI is prevalent in over 50% of originations, it is a highly profitable duopoly dominated by CMHC and Genworth, it has a hybrid public-private system with government backing, and consumers and lenders drive the demand for insurance. The document also analyzes MI industry financials, market sizing, competitive dynamics between CMHC and Genworth, and expected future growth in the Canadian MI market.

1. The Canadian Mortgage
Insurance Market
Scott Wilkinson
Idea Associates Ltd
July 2007

2. Idea Associates is a Toronto based consultancy focused on financial
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2

3. MI was developed to protect investors from the risk of default and therefore
increase housing finance access and affordability.
• Mortgage insurance allows consumers to buy homes with a lower
down payment and lower interest rate as the risk of default is offset by
the insurance policy.
Mortgage insurance is most applicable to countries with a large 25-45
demographic with moderate wealth.
Poor people don’t buy homes … for the middle classes.
Characteristics of mortgage insurance:
Used for loans where loan-to-value ratio is greater than 80%.
Income created from premiums and invested capital
Mortgage insurance’s create value by “lending” the credit rating of the insurer
to lenders.
– Globally, mortgage insurance is provided by private companies … limits
the companies to those with AA credit ratings or above.
Mortgage insurance risk is catastrophic … losses come in tidal waves
– Industry structure marketed by slow builds by insurers during booms
followed by exits during recessions… geographic risk mitigation vital.
Idea Associates Ltd
Client Confidential
3

4. The Canadian mortgage insurance market is defined by the following
characteristics
• Mortgage Insurance is Prevalent … over 50% of originations
• It is a Highly Profitable Duopoly …. $1.5 bn
• It is A Hybrid Public And Private System … government guaranty
• Consumers and Lenders Drive the Market for Insurance …
Lenders make the decisions
• It is Highly Efficient And Effective … favours entrenched
competitors
• The Industry is Prone to Catastrophic Losses and Exits … how
soon, where the next “Texas” scenario?
Idea Associates Ltd
Client Confidential
4

5. Canadian MI in force in 2005 surpassed $400 billion … 52% of originations
were insured and 53% of total mortgage assets were insured
53% of mortgage assets insured in 2005 MI profits surpassed $1.3 bn in 2005 … down 2006
% Ins ur e d M or tgage As s e ts
60%
$1,500,000
T o tal In co m e (000's)
55%
CMHC
50%
Real i gnment
45% $1,000,000
40% Genwor t h ent er s mar ket
35%
Pr oper t y Val ue &T r ust Col l apse $500,000
30%
25%
20% $- 2001 2002 2003 2004 2005 2006
0
3
6
9
2
5
8
01
04
8
8
8
8
9
9
9
20
20
Genworth Income $86,536 $129,362 $197,974 $239,328 $306,588 $250,403
Sour c e: B ank of Canada, OS FI, Idea A ssoc i at es CM HC Total Income $345,000 $544,000 $667,000 $950,000 $1,002,000 $1,026,000
Annual MI premiums exceeded $2 bn in 2006
Annual Premiums Written 2002 - 2006 MI capital reserves were $5- bn in 2006
Capital Reserve: 2001 2006
2,500,000 6,000,000
5,000,000
2,000,000
4,000,000
1,500,000
(000's)
(000's)
3,731,000
1,446,000 1,492,000 1,383,000 3,000,000 3,406,000
1,000,000 1,203,000 3,112,000
1,285,000 2,000,000
2,237,000
500,000 1,380,000
1,000,000 938,000
603587 1,082,249 1,351,000
385,247 503,654 471,259 533,889 588,427 876,773
281,933 - 373,869
0
2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006
Canada is the second largest MI market outside of the US… stable, lucrative, low risk market
Canada is the second largest MI market outside of the US… stable, lucrative, low risk market
Idea Associates Ltd
5
Sources: Bank of Canada 2004, CMHC Housing Observer 2005. Idea Confidential Analysis 2006.
Client Associates

6. The Canadian MI value chain reflects the bias of automated primary market
servicing … costs are field sales, training and underwriting
1 4 MI AUS
Master
Lender 7 8 9 10
5 6
Agreement Premium
Wholesale Claims Product
2 Application Underwriting Recognition & Servicing
Insurance Management Design
Platform Investment
Integration
Canadian MI Competitive Dynamics
Annual Quota 1. All deposit taking lenders must use MI. There are no 7. Premiums are charged up front and amortized over
Agreement product substitutions. life of loan (OSFI directed). Private insurers pay
3 2. MIs are integrated into the lender platform. Real- CMHC ~2% of gross premiums for 90% guaranty.
Field sales time mainframe to mainframe deal adjudication. 8. Policy is for life of mortgage and premiums are non-
& Training 3. Borrowers have a choice in MI but in practice refundable. Policies are portable to new properties
lenders allocate MI by quota – relationship, capital and or new mortgages. Servicing is associated with
12 costs, local training benefits and claims drive ensuring loan details are up to date as 1/5 customer
selections. base renew annually.
Government 4. MI AUS (Emili & Omniscore) are highly evolved 9. MIs approached by lenders on ad hoc basis for
Guaranty and many lenders have begun to outsource wholesale insurance associated with securitization of
underwriting decisions conventional portfolio.
11 5. Data is electronically sent to MIs via lender systems 10. When a loan falls into arrears (3 months) lenders
or from the broker system directly. Lenders and will notify insurers of a claim process. Insurers
Regulatory brokers can pre-approve customers directly with the attempt work out to minimize losses. Additional
Approval MI. foreclosure process is 90-120 days.
•OSFI 6. Underwriting is automated on a deal by deal basis. 11. MIs are regulated by OSFI and comply to the Bank
•Bank Act Key determinants: LTV, property value, debt Act, Insurance Act, National Housing Act.
•Insurance Act servicing ration and credit score. Minimum credit 12. The government guaranty of MI means that MI
•NHA score is 620. Max LTV is 95%. MI pricing is by mortgages are treated as sovereign debt for purposes
•Finance LTV only. No risk based pricing or incentive of capital reserve. Capital reserve for non-insured
pricing. mortgages is 4%.
Canadian MI is centered on retail deal supply and adjudication
Canadian MI is centered on retail deal supply and adjudication
Idea Associates Ltd
Client Confidential
6

7. The Mortgage Insurance value chain is symbiotic to the mortgage value
chain.
Master Mortgage Closing & Funding / Default & Product
Lender Underwriting Servicing
Origination Fulfillment Securitization Recovery Design
Agreement Filogix
$
Platform
MI AUS
Integration
Annual Quota Premium Wholesale Claims Product
Agreement Application Underwriting Servicing
Recognition Insurance Management Design
Field sales
& Training • Pre-approval • AU System Fee • Collect • portfolio • Work-out
• Risk
• Application • Evaluate: premium at enhancement • Foreclosure
monitoring
• Validation • Income & closing for • Claims pay-
• Switches
Debt Service • Pay 10% gross securitization out
• Customer
Government • Credit rating to CMHC for deals • Claim Gov’t
enquiries
• Property reinsurance reinsurance
Guaranty
valuation • Amortize
• Decision & cert revenue
• Invest capital
Regulatory Marketing/Sales/Admin
Approval Inputs: Marketing/Sales/Admin
• Purchase Agreement • Fire insurance cert
• Municipal tax Investment of Capital
• Client proof of Investment of Capital
• Appraisal, AVM or MLS data
income/assets
•Title insurance (CMHC)
• Credit Bureau
•New home guaranty Financial Management/Credit Rating
Financial Management/Credit Rating
IT/Operations
IT/Operations
Idea Associates Ltd
Client Confidential
7

8. The two entrenched mortgage insurers in Canada are CMHC and Genworth –
both are well capitalized, sophisticated and aggressive
CMHC Genworth
Year of Inception
1954 1996
Lines of Business
HLV Insurance HLV Insurance
Portfolio insurance Portfolio Insurance
Securitization AU systems (OmniScore)
AU systems (Emili)
2005 Insurance in Force ($ Billion)
$278 bn $124 bn
2005 Premiums Written
($ million) $1,560 $471
2005 Capital
($ Billion) $3.4 $1.1
2005 % Claims versus insurance in force
0.043% 0.028%
MI Markets Served Prime Prime
Alt-A Alt-A
Vacation properties Vacation properties
FI Coverage
National (app. 3500 FIs) National (app. 3500 FIs)
DBRS Credit Rating[1]
AAA (Sovereign) AA
Capital Relief Afforded to Lenders •100% •90%
CMHC remains the default MI provider: brand, sovereign debt status and quasi-public mission
CMHC remains the default MI provider: brand, sovereign debt status and quasi-public mission
allows them to outspend Genworth on sales, training and claims.
allows them to outspend Genworth on sales, training and claims.
Idea Associates Ltd
Client Confidential
8
[1] Dominion Bond Rating Service. May 2006. http://www.dbrs.com/intnlweb/jsp/search/searchResults.faces

9. The mortgage insurance market in Canada is expected to grow through 2016
… post boomer housing population smaller, but immigration impact expected
• Future growth scenario for MI in Canada indicates need for new MI
starting in 2016 – 2021 as boomer echo reaches prime house
ownership age.
Mortgage Insurance Market Size - 2006, 2011, 2016
Age Category
20-25 25-29 30-39 40-49 50-59 Total
Statistics Canada Population Estimates by Age Category (000's)
Population Estimate for 2006 2,253 2,226 4,574 5,370 4,446 18,869
Population Estimate 2011 2,295 2,330 4,682 5,121 4,979 19,407
Population Estimate for 2016 2,304 2,377 4,925 4,822 5,310 19,738
Mortgage and MI Purchase Likelihood % Householders By Age Category
Percent who own homes 16% 47% 67% 74% 77%
Percent with Mortgage 95% 90% 85% 70% 50%
Percent with HLV Mortgage 73% 73% 65% 39% 39%
Percent Taking MI 91% 91% 91% 42% 24%
Total MI Population Market by segment 10.0% 27.9% 33.7% 8.5% 3.6%
Number of Persons Per Household 1.56 1.56 1.56 1.56 1.56
Estimated # of MI Households (000's)
2006 144.9 397.5 989.1 293.6 102.6 1,927.8
2011 147.6 416.1 1,012.5 280.0 114.9 1,971.1
2016 148.2 424.4 1,065.2 263.7 122.5 2,024.0
Assumption: Mortgage Balance % 0.95 0.898 0.85 0.7 0.5
Estimated MI Mortgage Assets ($ million)
2006 (average MI Mortgage $185,000) $ 25,468 $ 66,043 $ 155,536 $ 38,027 $ 9,489 $ 294,562
2011 (average MI Mortgage $205,000) $ 28,753 $ 76,605 $ 176,428 $ 40,181 $ 11,773 $ 333,740
2016 (averge MI Mortgage $225,000) $ 31,679 $ 85,756 $ 203,711 $ 41,532 $ 13,780 $ 376,459
Idea Associates Ltd
Client Confidential
9
Source: Idea Associates Analysis, Statistics Canada, Clayton Research 2005

10. The lender (not the borrower) is the primary decision maker in the MI
allocation … target product/executive at HO mortgage product group
• Mortgage insurers serve three market:
Consumer
MI is mandatory - there are no product substitutes
Borrowers pay for MI – Prime, Prime-Alt A customers only
Enables house purchase (accessibility & affordability)… seen as a
commodity/utility that is not often used… a one time pain
Consumer housing demand, demographics, regional dynamics impact
Government
MI demand and risk costs. • System stability &
Consumers currently have the final choice on which MI to use but rarely
invoke that choice… but regulators are eager to preserve perception of efficacy
choice
Lender
• Consumer benefit/
Primary beneficiary of the MI … as intermediary and investor protection
MI seen as a way to expand potential market … but lenders do not • Competition and
collect compensation for MI
Mortgage business margins are thin … profitability weaker than US industry power
markets
Overall, lender community is very profitable and powerful in economy … • Government
makes them target of consumerist pressures
financial risk
Securitizer/Investor
MI enhancement of MBS pool directly impacts salability and economics • Housing finance
of offer access &
Securitization relatively new and peripheral in Canada … 80% of
mortgage assets still held on book affordability
Dominant conduit is CMHC … bank owned securities firms largest
issuers and managers of portfolios on behalf of originating FIs.
Mortgage exec’s play a peripheral role in securitization decision…
Treasury, corporate executives and investor relations drive
securitization decisions
The real customer is the lender … but government is aakey stakeholder
The real customer is the lender … but government is key stakeholder
Idea Associates Ltd
Client Confidential
10

11. MI demand is driven by mortgage growth … itself driven by housing prices,
capital availability and lender risk appetite…
• The value of annual mortgage originations surpassed $160 in 2004
and grew to $180 bn in 2005 … originations are expected to grow by
7% in 2006.
Annual Mortgage Originations
On + Que + BC + AB = 91% Mortgage Market
180,000
160,000
140,000
($ Billion Originated)
120,000
100,000 Existing
80,000 New
60,000
40,000
20,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
The Canadian mortgage market is driven by the “have” provinces …
The Canadian mortgage market is driven by the “have” provinces …
Idea Associates Ltd
Source: CMHC Housing Observer 2005, CMHC 2003 Client Confidential
11

12. 98% of mortgages in Canada were originated as closed/fixed term in 2005 …
85% of mortgages had a =< 5 years
2005 CIMBL Survey of Mortgage Products in Canada
All Open • Canadian market moved to short term
> 5 YR C/F
13% 1% products in the 80’s to hedge lenders
5 YR C/F against risk exposures.
32% Other • Popularity of Fixed Rate, Closed
1%
mortgages driven by pricing and generally
1 YR C/F favorable exit clauses for sale of house.
14% • The average mortgage account duration is
7 years .. Customers switch mortgage
4 YR C/F
banks 3 times assuming 25 yr amortization
8% • Rates, product flexibility drive customer
2 YR C/F
15%
satisfaction
3 YR C/F
16%
Closed Term, Fixed Rate, The primary product offer in the market. 3-5 year term most popular.
Terms up to 10 years common, 25 available from RBC.
Closed term, Variable rate Typically short term (6mth, 1 year) also offered in 5 year terms. Many
banks offer variable mortgages with caps (50 bps).
Open term, fixed/variable Offered at ~200 bps premium to closed mortgages. Short term
rates products also offered with conversion opportunity to fixed rate
products.
Line of Credit Bundle Hybrid mortgage + line of credit offers allow customers to borrow
money at mortgage rate as a line of credit. (ARM component).
Idea Associates Ltd
Client Confidential
12

13. Supporting mortgage growth has been the strong housing sales volumes and
prices …
MLS Total Residential Sales - 1995 - 2004
MLS Average Residential Price 1995 - 2004
500,000
240,000
450,000
Total Annual Units Sold
400,000 220,000
Average Sale Price ($)
350,000
200,000
300,000
250,000 180,000
200,000
160,000
150,000
100,000 140,000
50,000
120,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 100,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: CMHC Housing Observer 2005
Source: CMHC Canadian Housing Observer, 2005
2001 House Ownship by Provice
2004 Total Units Sold by Province
78.2
80.0 73.1 70.8 74.5
70.8 70.4
67.8 67.8 66.3
70.0 65.8
Alberta, 57,460, 13% British Columbia,
% of Total
Newfoundland and
60.0 63.0 96,385, 21% Labrador, 3,380, 1%
57.9
50.0 53.1 Prince Edward
Island, 1,500, 0%
40.0
Nova Scotia, 8,873,
30.0 2%
20.0 New Brunswick,
24.2
5,979, 1%
Y a
a
nd
Sa Ma io
O c
ut
a
ta
un tia
s
ar dor
n
bi
an
Q k
a t tob
be
ad
ie
t T uk o
ar
av
ic
sh ber
N Isl a
um
co
ew
or
a
ue
Manitoba, 12,098, 3%
sw
nt
an
ni
un
Ontario, 197,354, 43%
ew a S
E abr
rit
Al
ol
ch
C
d
N
er
C
L
ov
Br
dw
d
sk
Saskatchewan,
an
es
it i
Br
w
8,172, 2%
d
N
ce
an
th
Quebec, 64,907, 14%
in
or
dl
Pr
N
un
fo
Source: CMHC Housing Observer 2005
ew
N
Source: CMHC Housing Observer 2005
Ontario comprises 40% of the housing market … 90% of market volume in 44provinces
Ontario comprises 40% of the housing market … 90% of market volume in provinces
Idea Associates Ltd
13
Source: CMHC Housing Observer. 2005. Client Confidential

14. Top Banks account for 80% of total mortgage volume … large banks continue
to grow market share at the expense of non-bank lenders.
Market Share of Originations By FI Type
Mortgage Assets by Lender - Feb 2006 100%
80%
0.6% 2.8%
100% 8.2% Total Other
2.1% 2.4%
60%
2.5% Total Trust Companies
90% 3.0%
40% Total Chartered Banks
8.2%
80% 9.8% 20%
70% 12.3%
0%
60% 15.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
50%
40% 15.1% Annual Growth In Mortgage Assets by FI Class 2001 - 2005
30% Foreign Banks,
13.96%
17.9%
20%
10%
0% CAGR of Mortgage Assets by
Institution Type 2001 - 2005
N a t io n a l
M a n u lif e
In s u ra n c e
D e s ja r d in s
BN S
IN G
S p e c ia l
H SBC
P u rp o s e
C IB C
C U
BM O
R BC
TD
C a is s e
Domestic Banks,
L if e
CAGR
1.73%
Loan Companies, - Life Insurance, -
4.03% Trust Companies, - 4.25%
5.68%
From an MI perspective, only 10 customer relationships count …
From an MI perspective, only 10 customer relationships count …
Idea Associates Ltd
Client Confidential
14
Source: OSFI 2006. William Dunning 2006. CMHC Housing Observer 2005.

15. Not all banks use MI the same way across their portfolio … banks have
different needs/strategies for HLV mortgages
RBC Allocation of Residential Mortgage Assets - Royal Bank:
Insured Vs Uninsured
Total marketshare: 17.9%
Insured, Total Mortgage Assets: $92 bn
33,594,384 ,
36% Distribution Network: 1700 branches (no brokers)
Head of Mortgages: Catherine Adams
Uninsured,
58,595,032 ,
64%
BNS Allocation of Residential Mortgage Assets - ScotiaBank • National mortgage
Insured Vs Uninsured
Total marketshare: 15.1% industry leaders
Total Mortgage Assets: $77 bn
Insured,
27,565,875 ,
• Internal focus or
Distribution Network: 1200 branches & broker
35%
leaders
synergies
Head of Mortgages: Charles Lambert • System capacity and
Uninsured,
50,231,165 ,
analytics
65%
• Risk tolerance
TD Canada Trust • Revenue driven
TDCT Allocation of Residential Mortgage Assets -
Insured Vs Uninsured
Total marketshare: 9.8% decision making
Total Mortgage Assets: $51 bn
Distribution Network: 1700 branches & broker
Uninsured, leaders
22,049,345 ,
44%
Head of Mortgages: Rick Mathes
Insured,
28,597,661 ,
56%
Idea Associates Ltd
Client Confidential
15

16. The increased demand for mortgage capital has been met by lenders with
excess capital and through alternate channels like securitization.
• There Securitization vehicles in CMHC Securitization in Force
Canada:
$129,500
National Housing Trust
$103,709
CMHC derived
Mortgage insured (sovereign status) $80,800
($M)
Approved lenders/debt only $59,994
$45,473
(conforming, conventional)
Value in 2006 ~$130 bn
Private Issuance
Bank and Security firm issues … 2002 2003 2004 2005 2006
corporate debt status
70% of MBS non-conforming (alt-a, Total Asset Backed Securities Market and Non-NHA
sub-prime) Residential MBS Market Value 2001 - 2006 ($B)
GMAC is the major lender in the $25 $22
$21
market $20
$14
Issues associated with risk $15 $12 $12
$11
transparency … requires costly $10
$5
discounts versus NHA issues.
$-
Value in 2006 ~$25 bn 2001 2002 2003 2004 2005 Mar-06
Securitized mortgage debt $155 bn …. ~25% Source: DBRS 2001 - 2006 Total MBS Value
of assets
Unlike US, Securitization is aatreasury tool not alternate capital and risk management
Unlike US, Securitization is treasury tool not alternate capital and risk management
Idea Associates Ltd
Client Confidential
16
Source: Dominion Bond Rating Service. 2005. CMHC Website.

17. The Canadian Government is a primary stakeholder … their interests revolve
around consumer, regulatory prudence and perceptions of fairness.
• Key issues we need to consider from a political and regulatory
perspective
Consumer benefit
Perception of increased choice, lower costs and increased mortgage funds
access and affordability
Systemic benefit/risks
Government exposure to MI default
Systemic benefit or risks to overall banking competition – particularly overall
concentration with Big 5
Overall risk exposure to public purse, of industry to MI guaranty
Lender benefits
Ability to create “fair” revenues
Perception of profit off of consumers’ requirement for MI
Capital cost supplement and risk free returns
CMHC (and, Genworth) impact
The government does not want to bail out existing MI
Product innovation and competition
Desire for competition is aapolicy issue not aamarket issue driven by non-banking FI and consumer
Desire for competition is policy issue not market issue driven by non-banking FI and consumer
lobby
lobby
Idea Associates Ltd
Client Confidential
17

18. Typical mortgage spread is ~160 bps … creates 16 bps per year on
contribution
• Lender profitability driven by up-
front costs
Size of rate discount – spread can be as Canadian M ortgage Profit & Expe nse Allocation
low as 120 bps
Broker fees 100 – 150 bps one time up 180 160 60
160
Basis Points
front 140
120 4
100 25
Appraisal fees $75 - $250 80 23
60 4
• The “average” MI mortgage in 40
20
28
16
0
2005:
A
es
n
ry
ve
g
d
...
tio
&
tin
ea
su
Fe
$180,000 principal
er
G
ct
bu
ke
pr
ea
es
S
du
nt
S
tri
ar
el
R
Tr
ro
ro
on
M
nn
Fixed rate
pf
P
C
ha
U
&
C
ng
5 year term
ci
vi
er
25 year amortization
S
average spread 160 bps
average MI premium 173 bps
Lenders will jump on opportunity to increase revenue … 25 bps is 25% boost in annual contribution
Lenders will jump on opportunity to increase revenue … 25 bps is 25% boost in annual contribution
Idea Associates Ltd
Client Confidential
18

19. Mortgages are not a profit centre for Canadian Banks and spreads have been
decreasing… although mortgages drive other profit areas like deposits
• Canadian lenders operate at a lower profit than US industry averages.
Mortgage spread is lower – between 120 – 160 bps compared to 180bps for US
mortgage banks… operating income is 40bps
Canadian lenders don’t charge fees for mortgage applications and pay fees for
customers for renewal and refinancing
Canadian lenders pay for broker fees and for refinance and renewal legal costs.
Mortgage Business Contribution Analysis: U.S.
and Canadian Large Mortgage Lender
$10,000
$8,000
$6,000 Contribution Difference
US Lender
Nominal Dollars
Cumulative
$4,000 Income (US$)
Canadian Lender
$2,000 Cumulative Income ($C)
$0
-$2,000
-$4,000
Ye 1
2
3
4
5
Ye 6
7
8
Ye 9
Ye 0
Ye 1
Ye 12
Ye 3
Ye 14
Ye 5
Ye 6
Ye 17
Ye 8
Ye 9
Ye 0
Ye 1
Ye 2
23
1
1
1
1
1
1
1
2
2
2
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
ar
Ye
Ye
Ye
Ye
Ye
Ye
Ye
Mortgage Year
Difference in Operating Income Canada - US Cdn Cumulative Income US Cumulative Income
Canadian lenders desperately need new revenue sources to increase profitability
Idea Associates Ltd
Sources: Bank of Canada, U.S. Federal Reserve, 2001. Client Confidential
19
* U.S. data available only to June, 2000. We therefore compared 9/96-6/00 rates for short-term.

20. US and Canadian credit and delinquency distribution is also different
Distribution of Population by Credit Score and Rate of
Deliquency
FICO is the benchmark credit standard.
Globally, countries experience ranges of credit
30% 100%
performance based on cultural norms. Canada
% of Canadian
27%
Rate of Credit
Delinquency
25% 24% 80%
P opulation
78% tends to be more conservative than US as
20% 60% 19% 60%
15% reflected by the distribution of population and
10% 39% 11% 40% delinquencies by credit score. This is also
6% 23% 5% 20%
5% 4% 4% 12% reflected in the relative sizes of sub-prime
0% 5% 2% 1% 0% lending markets.
9
9
9
9
9
9
0<
49
59
64
69
74
79
84
<5
85
0<
0<
0<
0<
0<
0<
55
60
65
70
75
Beacon-FICO Score 80
Canadian Distribution Canadian Delinquency Rates
US Credit Score Distribution and Delinquency Experience
30% 100%
87% 27% 90%
25%
Delinquency Experience
80%
71% 70%
US Population
20%
Sources: www.fairisaac.com, www.experian.ca 18% 60%
15% 51% 15% 50%
13%
12% 40%
10% 31% 30%
8%
20%
5% 5% 15%
10%
2% 5%
0% 2% 1% 0%
300-499 500-549 550-599 600-649 650-699 700-749 750-799 800-850
US Population Delinquency rate
Canadians default experiences is ¼ of the US experience
Canadians default experiences is ¼ of the US experience
Idea Associates Ltd
Client Confidential
20

21. Mortgage growth fueled by debt-affordability, employment and disposable
income within beneficial macro-economic conditions in Canada.
• Canadians have increased debt load during the low-interest period …
Unemployment, 5 Year Mortgage and Growth in Disposable Income 1995 -
2004
5 10
Unemployment Rate
(right scale)
4 9
% Growth Disposable Income
5 Year Mortgage Rate
3 (right scale) 8
%
2 7
Annual Increase in
1 6
Disposble Income
(left scale)
0 5
-1 4
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: Canadian Housing Observer, 2005
Assuming constant interest rates… housing affordability conditions remain strong
Assuming constant interest rates… housing affordability conditions remain strong
Idea Associates Ltd
Client Confidential
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22. Loan losses and debt servicing levels remain consistent as a result of low
interest rate environment while debt increased by 10% since 2001
• MI Claims in 2005 $154 million dollars … driven by buoyant economy and low rates.
Only .24% of customers in arrears in 2005 down from a high of .68% in 1992
LTV is still primary indicator of default rate with Canadian MIs reporting defaults of 8-10x at 95%
LTV compared to 80% LTV
While debt servicing ratio is relatively steady, there has been a 20% increase in debt to
disposable income since the high-rate early 90’s
Claims Expense 2001- 2006
400,000
350,000
300,000
250,000
(000's)
200,000
150,000
100,000
50,000
-
2001 2002 2003 2004 2005 2006
CMHC Insurance Claims 335,000 139,000 188,000 51,000 119,000 209,000
Genworth Insuance Claims 26,172 12,381 10,602 25,751 34,455 45,962
World Bank Housing Finance Conference 2003
Insurer/LTV Relative Risk: 80% LTV = 1.0
80% LTV 85% LTV 90% LTV 95%
LTV
U.S. Mortgage Information 1.0 2.53 2.3 4.38
Corp.
Canada: GE Mortgage 1.0 n.a. 4.08 10.63
Insurance
Canada: Mortgage Insurance 1.0 1.99 3.45 7.69
Corp
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23. About the Author
Scott Wilkinson MBA CMC
Idea Associates Ltd
416-669-5540
scott.wilkinson@ideaassoc.com
Scott leads companies through the process implementing new products and capturing emerging
market opportunities.
Prior to founding Idea Associates in 2002, Scott was a senior consultant with leading U.S. based
consultancies Organic Interactive and Dove Consulting. He has advised companies such as AGF
Funds Management, Brookfield, MGIC, GE Capital, Wells Fargo, Bell Canada Enterprises, Chrysler
Financial, American Express, Charles Schwab, IBM and others on product, market growth and
operational efficiency strategies.
Scott is published author on the mortgage industry, housing affordability, payments and billing,
interactive banking channels and B2B exchanges. He has published a number of industry white
papers, is a contributing author to the “E-Finance Report” on the US Banking Industry published by
McGraw-Hill and authored “The Evolving Impact of E-Commerce on Housing Finance and
Affordability” in 2003. Scott also has published articles on eCommerce governance, financial services
disruption strategy and innovation process. Before consulting, Scott spent 8 years with Royal Bank of
Canada and CIBC, as a key member of teams assigned to develop new products, payments and
channels.
Scott is a Certified Management Consultant, with a BA from the University of Toronto and an MBA
(with Distinction) from Richard Ivey School of Business at the University of Western Ontario. Scott is
a member of the Canadian Association of Management Consultants, the Product Development
Management Association and the Canadian Association of Accredited Mortgage Professionals.
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24. • Appendix
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25. Translating Canadian market to US will be challenging … so similar, so
different.
Canada US
Industry Organization Vertical – Big Banks, Horizontal, regional with
national dominance of securitizers
Mortgage Industry Small – generalist Large – deep mortgage
bankers industry,
Product Short-term, fixed, closed Long-term, open
Pricing/Fees National with relationship* Regional. Pricing based
discounts. Common fees. on value & risk. High fees
Securitization Add on to treasury Core product (Fannie &
Freddie), large off-prime
market
MI Model Upfront. Lifetime. Pricing Monthly until value of loan
by LTV. reduced to 77%. Pricing
varies by risk, value of
loan.
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26. US Canadian Mortgage Glossary …. ;)
Canada US
Credit Score Beacon (Fico) FICO
Refinance Consumer borrows more Consumer moves to lower
money at end of term rate
Portability MI policy lifetime, MI N/A
policy number can be
used at new lender
Balloon Loan Renewal Short-term mortgage loan
Servicer N/A Company that provides
statement collects fees for
securitized mortgages.
Primary MI stakeholder.
Mortgage Executive Banker temporarily in Lifetime career.
mortgage group … Specialties in insurance,
generalist servicing, origination.
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