The Federal govt controls hi-ratio mortgage lending…. (mortgages that are greater than 80% loan to value)… There is a $600 billion limit for Canada Mortgage and Housing Corporation (CMHC… a federal corp). And a $250 billion limit for Genworth Financial Canada (a private corp).
Last year, the govt reported CMHC was fast approaching it’s $600 billion limit and that it had no intentions of increasing that limit. Then last month, the federal govt announced they would increase Genworth’s limit to $300 billon. This gives Canada’s mortgage lenders some breathing room as it now appears as though there is enough room to cover mortgages for a few years…
WHY YOU SHOULD PAY ATTENTION
This latest move troubles me… Finance Minister Flaherty has repeatedly said he would like to see CMHC privatized over the next 5 to 10 years. While I’m all for less govt and more privatization, housing programs have been a huge win both the citizens of Canada and the govt. CMHC is profitable… they earn billions of dollars each year. They also make the dream of owning a home a reality for thousands of Canadians each and every year. Our economy depends on a healthy housing market.
Privatization would mean less competition for mortgage insurers….Less competition ALWAYS means higher cost to the consumer… We’ve seen and experienced this with the BIG SIX BANKs and their user fees, obscene mortgage penalties and RECORD BANK profits in 2012 (don’t worry, Canadians have begun to catch on to the BIG SIX and are slowly pulling away according to the latest stats).. We should expect the same if the Feds are allowed to push through the sale or closure of CMHC…
Let’s hope the govt will not do anything as crazy as to privatize a 66-year-old govt corp that has played such an important role in shaping Canada’s landscape…. I can only imagine what would have happened if CMHC was not around in October 2008, when the US sub-prime mortgage crisis hit…. There has been much talk about our strong Banking and Financial sector that saved us from a similar economic collapse… But would the private insurers still have offered the much-needed mortgage insurance products during those critical first 6 months after the crisis? Would that infamous stable, Canadian housing market, been able to survive the US shock waves? Would our economy still be the envy of the world? Or would we be just as vulnerable and suffer the same fate as so many other countries did….and like so many other countries still do… and struggle to recover.