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A new twist to the CMHC and Canadian Mortgage insurance drama…..
When the new federal budget came in about a month ago we discussed two things:
1. The first being that the governance of CMHC was being moved from the human resources department to the Office of the Superintendant of Financial Institutions (OSFI). Essentially control of CHMC was being moved so that the financial department could have direct audit and control of its policies and programs.
2. Due to CMHC increasing its portfolio insurance holdings (insuring mortgages for banks at less than 80% loan to value), the media created uninformed and overblown fears about the amount of mortgages insured by CMHC. CMHC is nearing its limit of total amount of mortgages it is permitted to insure, forcing lenders to expand their insurance relationships with Genworth and Canada Guaranty. The speculation was that the government, due to CMHC’s low portfolio loan to value would increase its insurance limit.
So, the news:
It looks like Jim Flaherty is moving quickly to sink his claws into CMHC and has discussing the future viability of the organization. In comments (attached below) to the National Post it appears as though:
1. CMHC’s is near the limit of its ablility to insure and might not be increased.
2. OSFI has started to increase its governance of CMHC and its practices
3. The government might decide to do away with CMHC all together and allow the two private insurers (and doublessly others) to have control of the Canadian default insurance market.
I hope you have an awesome week, I am happy to chat and would love to catch up, as well please always feel free to give me a ring with any questions.
CMHC could be pulled out of mortgage insurance business, Flaherty says
Garry Marr Apr 27, 2012 – 6:33 PM ET | Last Updated: Apr 27, 2012 7:33 PM ET
Finance Minister Jim Flaherty would consider taking Canada Mortgage Housing Corp. out of the mortgage default insurance business he told the National Post’s editorial board.
‘I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada’
“Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada. I think what’s key is that mortgage insurance is available at a reasonable cost in Canada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”
He offered no timetable on when the government could get out of mortgage default insurance business, just offering it up as a possibility. “We have a list of Crowns, Crown agencies that are being reviewed,” said Mr. Flaherty.
In a wide-ranging discussion on the housing market, he said he has no plans to increase CMHC’s current $600-billion loan limit, ruled out any possibility of regulating foreign real estate investment and made it clear his focus is on the governance of Crown corp. which controls about 75% of the mortgage default insurance business in the country.
“For some time now I’ve had concerns about the large commercial role that CMHC now plays. CMHC has become a significant Canadian financial institution. As you know, historically it was created with a mandate post-war to advance housing in Canada. It’s become much more that.”
The finance minister moved this week to tighten control of CMHC, placing it under the authority of the country’s banking regulator, the Office of the Superintendent of Financial Institutions. Previously, it fell under the watch of the Department of Human Resources and Skills Development.
The shift comes with CMHC closing in on the $600-billion limit the government has for how much of its portfolio will be backstopped by the taxpayer. Three years ago it was $450-billion.
By law, consumers must buy mortgage default insurance if they have less than a 20% down payment on a home and are borrowing from a federally regulated financial institution.
But CMHC has not been insuring just those loans, it has agreed to step in and insure loans — with the premiums paid by financial institutions — for lower-ratio mortgages, or what is called “portfolio” or “bulk insurance.”
He said the head of OFSI will now have the power to look at the books of CMHC the way she looks at the books of other private financial institutions in Canada. Already, the government has placed the deputy minister of finance on the board of CMHC.
“We have quite a bit of information about what the banks do and don’t do. [Superintendent] Julie Dickson had to go to some of them in the last year and say ‘you must ensure that your board policies on residential lending mortgages are carried through,” he said. “She’s quite a strict supervisor which is good for our country.”
OSFI has already been looking into CMHC and established one of the key issues for the organization is governance. “OFSI are certainly of the view there are necessary governance improvements we can do,” said Mr. Flaherty.
He made it clear there are no plans to extend CMHC’s $600-billion limit. “For a while,” said Mr. Flaherty, about how long the Crown corporation would have to exist under that limit. It was at $541-billion at the end of the third quarter of last year but business has slowed as the agency culled its portfolio business.
Mr. Flaherty’s own opinion on the housing market is that has been fuelled by low interest rates which he says he does not control. “Cheap money,” he said, noting he did talk to the banks about being unhappy about their mortgage rate wars earlier this year which had reduced the rate on a five-year closed mortgage to below 3% — an all-time low.
As to whether the market has been in part fueled by foreign buyers, as many in the real estate industry have suggested, Mr. Flaherty said his government will not get involved in that aspect of the market. “No,” he said, pausing to emphasize the point. “I don’t think there is [a role]. They key in housing from my point of view is to get the best information on housing.”
Posted in: News Tags: cmhc, Jim Flaherty