Tightening the screws on CMHC
Overview
Concerns that CMHC has grown too big and taken on too much risk that would ultimately fall on the shoulders of the Canadian taxpayer has resulted in significant changes to a federal institution that has consistently performed well for its federal shareholder over the many years of its existence.
Yes, its insurance book grew from 2007 to 2011, from $345M to $567 . But this has allowed many new home buyers to get into the market and spurred significant urban residential construction. Even in a down market with falling vales as we saw in the 90's,defaults did not have anywhere the impact we have been seeing with Fanny Mae et al in the US. And yet the government has chosen to cap it's insurance book at $600M,the ceiling it recently reached.
60% of borrowers used shorter amortizations. Average equity in CMHC insured homes is 45%. So financially , the crown corporation is solid.
Insurance availability for higher net worth home buyers and owners, and for more expensive homes, has allowed more people to access capital In their homes, and also acquire more expensive homes(although homes over $900k saw a sliding reduction in insurability anyways). The government wants to "cool" the supposedly overheated housing market and so it uses one of the tools it has- control of CMHC. No discussion, just overnight changes that send negative signals to potential homebuyers and investors that real estate is not going to be such a good investment in the future . The government may well create its own self fulfilling prophesy.
Unfortunately in so doing, it takes away from the marketplace, a very successful vehicle which has served a variety of homebuyers very well , and further reducing the maximum amortization of insured mortgages will further eliminate many CMHC customers going forward.
But CMHC is not only a mortgage insurer. It has over the years provided valuable research and data to the residential construction industry. Research on new and existing building practices has helped builders be innovative and build better , more efficient homes. And producing research on sales trends and other industry stats, has assisted residential builders and their associations plan their business models going forward.
CMHC's recent budget saw a major budget cut this year which will result in significant reductions to the very important support services it provided to the industry. It seems a shame that the government required wholesale cuts across the board in its departments and crown corporations without regard to their relative importance.
CMHC has been a very effective vehicle to support new home buyers get into the market, and also to help builders build better homes and run their businesses . Its activities should be supported and welcomed, not critiqued and crimped.
