MORTGAGE INSURANCE NEWS

CMHC could be pulled out of mortgage insurance business, Flaherty says
By Garry Marr
Financial Post Apr 27, 2012

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.

“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.”

MORTGAGE FIX

Flaherty calls on banks to ‘fix’ mortgage market
Reuters
April 4, 2012

Canada’s finance minister said on Wednesday he would rather not tighten mortgage rules again to curb high household debt and that banks themselves are taking on that job by becoming more strict with their lending criteria.

Jim Flaherty said he has seen signs of moderation in the Toronto condominium market and expects to see a similar trend in Vancouver, one of the country’s hottest real estate markets.

“Part of that is based on what I’m being told by people who build condominiums, and also what I’m being told by some of our banks about their standards becoming more stringent with respect to their loans for condominium development,” Flaherty told reporters in Vancouver after making a speech there.

Flaherty said it was up to markets to “fix” the housing and debt problem, not the government.

“I’ve tightened up the mortgage insurance market three times … I really don’t want to do it again,” he said.

“And I’m glad that some of the banks – at least one of the bank executives yesterday indicated that he agreed that actually the banks should exercise prudence and not rely on government to do it for them,” he said.

Bank of Nova Scotia Chief Executive Rick Waugh said on Tuesday that the simmering housing market gives reason for caution, but that it’s up to the country’s banks, rather than the government, to manage the risks of their massive mortgage portfolios.

Several other bank executives – Toronto-Dominion CEO Ed Clark in particular – have said they would welcome further government moves on mortgages.

The government and central bank have been warning Canadians of the dangers of taking on too much debt, particularly through mortgages, at a time of historically low interest rates and high housing prices. The ratio of debt to personal disposable income hit a record high last year and has moderated somewhat since then.

Despite some resemblance to the U.S. housing market prior to the crash, most economists expect a soft landing in Canada.

Flaherty has tightened rules three times since 2008 in the mortgage insurance market but left them untouched in the federal budget last week, to the surprise of many.

The budget did propose enhanced supervision of the federal housing agency that issues mortgage insurance. Flaherty said the banking regulator, the Office of the Superintendent for Financial Institutions, was studying the matter.

ON GUARD FOR THEE?

Canada stands ready to tighten mortgage rules: Flaherty
By Randall Palmer
Reuters Mar 22, 2012

STITTSVILLE, Ontario – The Canadian government, dealing with signs of an overheated property market, is ready to tighten mortgage insurance rules again if necessary, Finance Minister Jim Flaherty said on Thursday.

Mr. Flaherty also chided bank executives for asking the government to impose more restrictions, noting that the banks are the entities that offer mortgages.

Canada’s banking regulator, trying to curb risks posed by record-high levels of household debt, said this week it wanted lenders to be more transparent about their mortgage businesses.

Mr. Flaherty has imposed tougher requirements for government-backed mortgages three times since 2008.

“With respect to tightening up the mortgage insurance market we’ve done it three times … and we watch, we monitor the market, and if we have to tighten it some more we will,” he told reporters in Stittsville, Ontario.

“The new housing market produces a lot of jobs in Canada so there’s a balance that needs to be addressed. I’d like the market to correct itself, quite frankly, if it can.”

Mr. Flaherty said he had noted indications of softening in the Toronto condominium market, which he said was a good sign.

Canada’s household debt-to-income ratio hit a record high of 151.9% last year, largely the result of mortgage borrowing. The ratio dipped slightly in the fourth quarter but at 150.6% was not far off the record.

Mr. Flaherty said “it was a bit odd” that some banks were pressing him for tighter rules.

“We have bank executives in Canada saying ’You know, really the rules on insured mortgages should be tightened up’. They must forget that they are actually the ones that issue the mortgages — it’s their market, it’s not my market,” he said.

Since 2008, Mr. Flaherty has lowered the maximum amortization period for new mortgages to 30 years from 40 years, raised minimum down payments required to qualify for government insurance, and required all borrowers to qualify for a five-year fixed-rate mortgage to get insurance.

If he decided to act again, Mr. Flaherty could announce new measures in his March 29 budget.

Mr. Flaherty, who has promised to cut spending to eliminate the federal government’s budget deficit by the 2015-16 fiscal year, said he would be proposing moderate cutbacks in the budget.

“This is not an austerity program,” he said, adding the focus would be on long-term growth, prosperity, innovation and sustainable social programs.

NEWS FROM THE HILL

Ottawa toughens mortgage rules
By Andrew Mayeda
Postmedia News January 17, 2011

OTTAWA -- Finance Minister Jim Flaherty is cracking down on Canadians' ability to qualify for a mortgage, in the government's latest attempt to rein in consumer debt.

Flaherty announced Monday the government is reducing the maximum amortization period for government-backed mortgages to 30 years from 35 years. The change will affect mortgages with loan-to-value ratios over 80 per cent.

Canadians will only be able to borrow up to 85 per cent of the value of their homes, down from 90 per cent.

In addition, the government is withdrawing backing for lines of credit secured by people's homes.

Flaherty said the changes are designed to prevent the kind of housing bubbles that developed in other countries, most notably in the United States, where the collapse of the subprime mortgage market triggered the global financial crisis.

"The main reason we're taking the action is for the longer term, that we avoid even the beginning of the development of the kinds of issues in some other countries that have been very damaging to families," the minister told reporters after unveiling the mortgage changes.

Flaherty said the decision was based on the long-term goal of protecting household finances and the broader economy, rather than on any particular data on the housing market.

A number of economic observers, including Bank of Canada Governor Mark Canada, have recently expressed concern about the record-high debt levels of Canadians. Based on the ratio of debt to income, Canadians are actually deeper in the red than American households, which are still struggling to dig themselves out from the debt taken on before the financial crisis.

Flaherty said Canadian families must keep in mind that interest rates will eventually rise from their relatively low levels. Economists have expressed concern that a sharp rise in interest rates could leave Canadians stranded with too much debt.

"I think people need to demonstrate that good Canadian trait of prudence and reasonableness and common sense in terms of their debt assumption," said Flaherty.

Speculation has been building about whether the opposition parties will support the government's upcoming federal budget. The NDP, for example, has outlined a series of proposals, including help for Canadians' home-heating bills and the revival of the home-renovation tax credit. But Flaherty said the government doesn't plan to bring back the popular renovation credit, which was part of the government's economic-stimulus program.

Last Friday, Prime Minister Stephen Harper acknowledged his government was considering changes to the rules governing mortgages. He said the government "remains concerned about growth in the level of household debt.

In February 2010, Flaherty moved to toughen up the mortgage rules amid worries that Canada was in the midst of a housing-market bubble. The reforms, since introduced, compelled borrowers to meet standards for a five-year fixed-rate mortgage, even if the buyer wanted a shorter-term, variable rate loan.

They further required purchasers of rental properties to issue a 20 per cent down payment as opposed to five per cent. The moves played a role, observers say, in slowing down real-estate activity. While the federal government looks to curb borrowing, economists say the Bank of Canada may have to follow by raising its key interest rate sooner rather than later.

The central bank issues its latest rate statement Tuesday and it is expected to hold its benchmark rate at its present one per cent level as signs indicate the economy may be benefiting from renewed business and consumer confidence in the United States.

The tightened mortgage rules take effect March 18, 2011. Under federal law, lenders must obtain mortgage insurance when homebuyers pay a down payment of less than 20 per cent of the purchase price of the new home. The government then backs the insured mortgages. The new changes apply to such government-backed mortgages.

The withdrawal of government insurance on home-equity lines of credit takes effect April 18.

"Taxpayers should not bear any risk related to consumer debt products unrelated to house purchases. Those risks should be managed by the financial institutions that originate and offer these products," Flaherty said.

Changes to take affect this spring

The New Measures:

- Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.

- Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.

- Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs.

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