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It appears that change is underway for the Canada Mortgage and Housing Corp. (CMHC) — and this is not the first time. Over the last decade, CMHC protocol has been altered many times to make federal-backed mortgage insurance more difficult to obtain. Since the CMHC is accountable for more than 75% of the mortgage default insurance market, and is 100% backstopped by the government, adjusting the administration process is a necessary step to take in order to avoid a market crash.
Last month, Finance Minister Jim Flaherty placed the CMHC under the careful watch of the Office of the Superintendent of Financial Institutions (OSFI); and carrying forward, the CMHC looks to not only adopt a new reporting structure, but to also elect new officials among their ranks. The whole process of “cleaning house” is to reverse the negative effect affordable mortgage insurance has had on the property market. As some economists suggest: the current policies only make debt manageable, which in turn pushes property prices through the roof.
One solution proposed for this issue had been to reduce the amortization period to 25 years and to introduce a cap of $600-billion backstop to prevent bulk insurance. Although Ottawa passed this legislature, Jim Flaherty still finds error in the way the CMHC provides default insurance options for individuals who own conventional mortgages loans and have paid a down payment of more than 20%. Since these are considered low-ratio mortgages, the Bank Act does not stipulate the need for these individuals to have default mortgage insurance, and yet this is what is happening.
On May 30th, the CMHC will conduct a risk-management review — just as all other banks do quarterly — in order to assess the impact of these changes to determine the best course of action moving forward. In addition, Ottawa will discuss the ways in which 2013’s budget plan can be successfully implemented, benefiting the interest of the general public and the government. Assisting this change will be former Wall Street banker Robert P. Kelly, who is replacing the CMHC’s chef-executive Karen Kinglsey. An interesting note to make is that Robert Kelly is well experienced in the private sector, which may not be a coincidence considering the privatization of the CMHC may be in the cards. Instead of 100% government backfunding (tax-payer dollars), privatization would lower it to 90%. Considering the past decade of change and the market’s current direction, privitzation may be the best option for everyone at this moment.
Federal Budget 2013
