“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.” [Finance Minister Jim 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.”
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.”
– from ‘CMHC could be pulled out of mortgage insurance business, Flaherty says’, Garry Marr, Financial Post 27 Apr 2012 [hat-tip allen]
If it ain’t broke, don’t fix it.
Ergo, I think we can very fairly say that these announcements of change are an admission that something is ‘broke’, or is going to be. Just as many of us have opined for some time. The problem has been that the CMHC has mispriced risk and created a form of moral hazard, fuelling speculation with the same “cheap money” that Flaherty here blames on the bankers.
Interesting to note Flaherty playing hot-potato with Carney: “Cheap money is his problem!”; “..no, his!”; “..no, HIS!”; etc.
We’re not sure what he means when he says: “The key in housing from my point of view is to get the best information on housing.” Translation, anyone? Does he mean we shouldn’t consider things deemed extraneous to the market?