​Banks to pay for CMHC deductible?

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The Canada Mortgage and Housing Corporation is considering offloading some of its burden onto the banks by forcing them to pay a deductible on insured mortgages before claims will be paid out.

According to Financial Post Sources, OSFI and CMHC are in discussions about the potential policy change, though the Canadian Bankers Association, unsurprisingly, opposes the move.

“The CBA has ongoing discussions with CMHC about a variety of issues in the mortgage and housing markets,” Maura Drew-Lytle, a spokesperson for the CBA, told the Post. “The International Monetary Fund made a really vague reference to the notion of a mortgage insurance deductible in its Financial Sector Assessment report on Canada, but you would have to speak to CMHC about whether or not it is an idea that they are considering,”

OSFI could not be reached for comment and a spokesperson for CMHC refused to comment, according to the Post.

CMHC has been implementing measures to limit its risk all year, through various measures that have included axing certain insurance programs.

The Crown Corporation announced it will nix its loan insurance for the financing of multi-unit condo construction and that it will align its low-ratio product with its high-ratio insurance by implementing maximum house prices, amortization periods and debt servicing ratios. Those changes went into effective July 31 of this year.

“The changes are a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC,” an official release from the crown corporation reads. “They also support the government’s continued efforts to adjust the housing finance framework to restrain growth of taxpayer-backed mortgage insurance, as noted in Economic Action Plan 2014.”
  • Layth Matthews on 2014-09-10 1:48:07 PM

    While a deductible is a good source of market discipline in principle, it's already difficult to get people qualified for mortgages and the default rate is miniscule. All they needed to do was shorten the amortization limits and the market remains healthy in the long run.

    Deductibles will serve to increase down payment requirements, making it tougher to get in, but creating another savings incentive, which is good in my view - if people take the hint.

    On a different note, expensive housing is probably the best thing going for the environment. Single family houses should be expensive, it's a totally unsustainable lifestyle model if we are thinking globally. Personally, I like the multi-generation hacienda model, although that's probably unsustainable too.

    Back to earth, the good news is, I think I'm already starting to see an uptick in mortgage business due to the tightened guidelines! Property values have continued to rise modestly and combined with the shorter amortization loans, people are starting to have equity to work with again. This month, I had three clients refinance their homes to buy rentals! Hope it's a trend.

  • tom adamson on 2014-09-10 3:20:01 PM

    This is nothing new and a move I see as positive from CMHC's position.
    In the late 70's managing a portfolio in excess of $500,000,000 (alot of money then) I routinely took there option "B" that did two things, firstly, it put dollars in my "non performing" portfolio and more importantly gave the institution control over marketing the delinquent product. Point being it was my opinion I new the local market better than a bureaucrat from god only knows where.
    Never (9years) took a loss. A little common sense often goes far.
    Option "B" is not knew to the banking business, I suggest they are simply not interested in doing whats best for there clientele, for the most part never have been.
    The brokerage community should be supporting this. If the "big schedule A's" where acting responsibly CMHC would not be reacting in the only manner available to them.
    Please open your eyes and educate the general public; is that not exactly what the brokerage industry needs.

  • Victor Simone on 2014-09-10 9:02:28 PM

    I am very pleased to hear about this, why ?

    I lose business to banks, because I ask for NOAs, and banks let those borrowers off the hook.

    Banks reward a large amount of non-qualified borrowers with the best rates because the deals are insured. Hopefully, these deductibles will give banks an incentive to stop making exceptions and giving many "B" borrowers "A" rates.

  • Alphonse Negro on 2014-09-11 8:23:27 PM

    Which ever way you look at, the industry is looking for qualified clients that are in principal first time buyers. Banks do not want to partner with investors that leverage one home to buyer arental or multiple rentals. Building equity is all about saving for that investment. A deductible in my opinion will keep marginal buyers out of the market. I see too many realtors making deals happen where either the documentation does not support the deal ot the client is just not ready... Perhaps this is the message that OSFI and the under writers are trying to give..

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