The average cost of a defaulted mortgage claim at Sagen MI Canada has climbed sharply enough to offset the revenue surge from Ottawa's rule changes. Write more business, watch margins shrink, that's the pattern emerging from the country's largest private mortgage insurer as the 30-year amortization era takes hold.

Federal reforms that took effect in late 2024 expanded the insurable mortgage ceiling to $1.5 million and opened 30-year terms to first-time buyers and anyone purchasing a new build. The policy delivered exactly what it promised on volume. Sagen's premium intake jumped as thousands of buyers who would have been locked out at the old $1 million cap suddenly qualified for default insurance. In Vancouver and Toronto, where median detached prices had long exceeded that threshold, the shift was structural. Buyers who previously needed 20% down now needed 5%. The insurer's book grew accordingly.

But the earnings line tells a different story. Net income dropped quarter-over-quarter despite the premium growth, dragged down by what Sagen calls "claim severity", the dollar cost per loss when a borrower defaults. That number is rising because borrowers are failing with less equity cushion and higher secondary debt loads. A claim that might have cost the insurer $60,000 in 2023 now runs closer to $85,000, and the frequency hasn't improved enough to compensate.

Why Longer Amortizations Drive Claims Upward

A 30-year mortgage lowers the monthly payment, which is the affordability lever Ottawa wanted to pull. It also slows equity accumulation. A buyer who puts 5% down and stretches to 30 years will have roughly 11% equity after five years, assuming modest appreciation. At 25 years, that figure would have been closer to 16%. The gap matters because equity is what absorbs the shock when life derails, job loss, divorce, medical crisis.

When a default happens now, there's less home value to fall back on. Insurers like Sagen bear that risk directly. The borrower walks away. The lender gets made whole by the insurer. The insurer takes the loss. If the property sells for less than the outstanding balance plus costs, the insurer eats the difference. Thin equity means bigger shortfalls.

The timing amplifies the problem. Many of the borrowers hitting trouble today locked in at 2% or 3% during the pandemic and are now renewing at 5% or higher. Their debt-service ratio doubled. Some can absorb it. Others can't. The ones who can't are the ones triggering claims, and because home prices have stabilized rather than surged, there's no runaway appreciation to bail them out.

The Volume Trap

Sagen is in the uncomfortable position of succeeding at what it's supposed to do, writing more insurance, while simultaneously becoming less profitable per dollar written. The company remains well-capitalized under OSFI rules, but the trajectory is clear: policy tailwinds are driving top-line growth while credit-cycle headwinds compress margins.

The 30-year rule was designed to address affordability by spreading payments over a longer horizon. It does that. What it doesn't do is reduce the total debt load or the underlying price mismatch between incomes and housing costs. A buyer who can afford $2,400 a month at 30 years but not $2,700 at 25 years is solving a cash-flow problem, not a leverage problem. When rates reset or life circumstances shift, the leverage problem resurfaces.

For Sagen, the result is a book of business that looks healthy on volume and fragile on quality. Premiums are up because more people are borrowing more money with less down. Claims are up because those same people have less room for error. The insurer is caught between a federal policy meant to stimulate housing demand and a credit environment that punishes stretched borrowers.

The company's capital buffers remain strong, and defaults are still well below crisis levels. But the gap between revenue growth and earnings growth is widening, and it's widening for a structural reason: the borrowers who need 30-year terms the most are also the ones most likely to cost the insurer money when something goes wrong.