CD Howe Report Suggests The CMHC Role In Mortgage Insurance Should Be Reduced .
The report states that; "Governments’ role in mortgage markets is pervasive. An active role is often justified on the ground that home ownership is a fundamental good that governments should promote, and can do so through active engagement in mortgage markets. However, critics worry that government agencies may encourage excessive lending risks in the consumer marketplace, potentially creating unmanageably large risks in financial markets.”
With memories of financial ruin in the US still fresh, with a classic case of biting off more than you can chew, there is concern that too much governmental involvement in private lending practices will both encourage unnecessary risk and put an undue burden on the taxpayer.
Jeffrey Schwartz, Executive Director of Consolidated Credit Counselling Services of Canada Inc., sees the statement made by this report, following so closely behind other governmental agencies, as another call for responsible consumer borrowing; “The recent warnings from the Bank of Canada are urging Canadians to improve their current financial position. Although interest rates remain low Canadians may be enticed to borrow more than they need in order to afford to purchase what they want. The result of borrowing such a large amount is having to buy the additional mortgage insurance. We encourage people to ‘live within their means’, work with a budget that includes saving for their future and for emergencies. In case changes do occur in their financial stability they will be better prepared to handle it."
According to this report, when the numbers are broken down, CMHC is now backing mortgages that equal more than 30% of Canada’s gross domestic product, a large figure when placed in that context.
Recommendations from the CD Howe report include CMHC scaling down their backing of high ratio loans. Furthermore, they feel that the competitive playing field for private institutions to back these mortgages needs to be more level.
Private companies, largely, do not have access to the same kind of capital that government institutions do, and the feeling is that if CMHC backs off, things may begin to be more competitive. As long as these private institutions are prudently managed, they are a viable option, according to the CD Howe report.
Matt Daniels, Principal Broker / Owner with Ottawa Mortgage Advisors believe that balance is the answer, and agrees that a little competition is healthy; “CMHC should reduce their market share but not totally get out of the insurer business. On one hand CMHC is a big cash cow to the federal government. The rates that CMHC charge to consumers who need the insurance is almost double what the homeowners are paying south of the border. If CMHC steps back a little and reduces their overall exposure, then I think it is a real plus for not only the taxpayer (reduced exposure) but also for the home buyer, who should benefit from reduced insurer fees from the increased competition (Genworth) in the market.”