The Canada Mortgage and Housing Corporation (CMHC) has announced it will consider implementing risk-sharing measure with lenders in the future, confirming anonymous sources who told the Financial Post in early September that OSFI and CMHC were in talks about the potential policy.
“In our role as an adviser to government, we are evaluating a range of ideas on future improvements to our housing finance system, including risk-sharing with lenders to further confront moral hazard, future sandbox changes if housing markets are to become less stable, and increased capital requirements,” CMHC President and Chief Executive Officer Evan Siddall told the Saint James Club, according to a release posted on CMHC’s website.
The purpose of the move would be offset some of the crown corporation’s risk.
“Lots of work has been done on how corporations can better manage commercial risks, but in my view, too little attention has been paid to government’s management of tail risk,” Siddall said. “We can’t assume away disaster scenarios, which the private sector implicitly can do through buying insurance, filing for bankruptcy protection or receiving overt bail-outs.”
Indeed, 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.”