CMHC cuts to lead to privatization?

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According to a Financial Post source, the CMHC's decision to cut two of its programs moves it one step closer to potentially privatize the crown corporation.

“The mandate of CMHC is to get smaller,” the source told the Post.

The crown corporation announced last week it would be axing its second home program while also requiring self-employed homebuyers to provide third party income verification. The goal, according to the source, is to offload some its business – and its risk – to the two private insurers, Genworth and Canada Guaranty.

“CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system” Steven Mennill, Senior Vice-President, Insurance with CMHC says in an official release. “As part of the review of its mortgage loan insurance business, CMHC is evaluating its products and services to ensure they are aligned with these objectives.”

Moreover, effective May 1, each of the three insurers hiked their insurance premium by 15 per cent. The CMHC was the first to announce the increase – a move some brokers believe is necessary to ensure the long-term viability of the corporation.

“A lot of brokers don’t remember that (in 2005) ago the premium with five per cent down (were lowered to) 3.75 per cent so it went down and it’s gone back up again and our CMHC is pretty much guaranteeing as much mortgage debt as our government of Canada has in complete debt,” Tim Brierly of KCR Mortgages told MortgageBrokerNews.ca. “The mortgage premium is such a minimal amount of what you make in your monthly if the premium has to go up to make CMHC a more viable option – and able to cover the obligation it is sitting on – I don’t think it’s a big deal.”
 
 
  • Grazor on 2014-05-02 11:14:02 AM

    Not sure how two programs at the margin being cut suddenly becomes the basis for privitisation. Seems a bot of a reach.

  • Warren Ross on 2014-05-02 11:41:00 AM

    I think we're better off having a government backed insurer who has more interests like ensuring stable mortgage and housing markets than purely profit. It would be a huge mistake if CMHC were to privatize.

  • Ron Butler on 2014-05-02 11:58:28 AM

    I am with Warren, CMHC was a very important factor is Canada quickly moving through the 2008 World Financial Crisis. Seriously, very important. The other two insurers were tied to their US parents and we know what a tough spot they were in. CMHC did provide that stability and market presence.

    I am a smaller government guy but when I look at an institution that is profitable (sends money to the Feds year in and year out not the other way around) and provides a crucial backstop to the critical housing market like CMHC does, I say; rationalize it, streamline it, refine it but don't sell it.

  • Angela Wong-Liao - Invis Inc on 2014-05-02 12:32:42 PM

    I agree with Warren and Ron, it would be a huge mistake if CMHC privatize. It is easier for our government to monitor and control the stability of the housing market if CMHC remaining a Crown Corporation.

  • MP on 2014-05-02 4:13:53 PM

    I don't understand why there isn't more competition between the insurers like every other industry in Canada? Funny how their premiums are all the same. Other insurance allows for variations in premiums!

  • Blair Anderson on 2014-05-05 10:53:29 AM

    This endless support for CMHC staying public is puzzling to me. Like so many other government bureaucracies, it has grown well beyond its original mandate to help war vets find housing. Does CMHC really need to be involved in social housing, green energy programs, securitization programs, and market data collection? Can’t existing government departments like Human Resources and Skills Development Canada, Natural Resources Canada, Treasury, and Stats Canada respectively, with similar mandates, look after this?

    As far as the default mortgage insurance program goes, it’s a lucrative business, and it would have no trouble attracting private investors. For example, the Ontario Teachers’ Pension Plan already owns half of Canada Guarantee. In private hands, taxpayer protection improves to the current 90% guarantee of residual housing market liabilities, rather than the 100% exposure within the current CMHC model.

    @ MP… Yes, MP, privatization would lead to greater product diversification in the market as well as more competitive pricing. Private insurers currently supply only 30% of the market. Regulation and oversight would still be the responsibility of the feds, like it is now.

    It’s time for change. If you haven’t already, please sign my petition – http://www.gopetition.com/petition/41858.html

  • Ron Butler on 2014-05-05 11:16:41 AM

    @ Blair I know you were in the business in 2008 so you don't remember the panic for a few months? Genworth was teetering with it's US parent and was barely writing any business. AIG's parent went into bankruptcy so AIG was not writing any business. You don't recall how CMHC was used to inject liquidity into the Canadian mortgage market? You don't recall that only CMHC had a "business as usual" approach when no one else did? I really believe that if every insurer was private in 2008 the difficulties in the housing industry would have been hugely magnified and the return to normal would have taken years not months.

    I agree with you about CMHC streamlining and getting away from all sidelines they are in but most G - 20 countries maintain some form of government backed organization like CMHC.

  • Blair Anderson on 2014-05-05 12:01:47 PM

    Hey Ron, I can't rewrite history. You're correct about the company's you mentioned. I would add however, those US companyies and their ills had more to do with their own lack of leadership and a corrupt US federal banking system devoid of any real regulations. Or at least a lack of enforcement.

    You cannot compare the Canadian banking system then, much less now, to what went wrong state side. In fact, as you probably know, Canada Guarantee acquired AIG in 2010. They are 100% Canadian owned.

    Yes, the Canadian government had the means to use CMHC as oppose to direct capital injections to banks, but that is not all they did. The Bank of Canada also used other means to support banks, at nearly the same level of support.

  • Blair Anderson on 2014-05-05 12:14:41 PM

    Sorry, to your last point, you are probably right about Canada maintaining some level of government support, but don't we have that already with our private insurers government-backed up to 90 percent?

  • Warren Ross on 2014-05-05 1:10:33 PM

    @Blair - In a severe down market, a private insurer will be more apt to cut programs if there is a threat to profits. Fewer loan options would ultimately lead to further downward spiraling of housing prices thus negatively effecting the economy. Having a government backed insurance option that will be around in both good and bad markets will help maintain liquidity in housing prices benefitting all. If the feds lose money, the loss will be diffused by the whole nation, and the feds can print more money anyways so we wouldn't feel a thing. A lower valued dollar would be better for us anyways. Also, I don't think any of us can really argue with how CMHC manages risk. If it ain't broke, why try to fix it? Maybe you should reconsider your petition.

  • Blair Anderson on 2014-05-05 3:58:36 PM

    @Warren - It sounds like you and I may differ a little on what constitutes good market conditions, and the proper amount of government intervention vis-a-vis a severe marekt down turn. That is acceptable. On the other hand, your suggestion to print money is dead wrong. Goverments borrowing money to bail out "to-big-to-fail" companies, is one thing, but printing money would create more problems than it solved.

    My petition stands.

  • Warren Ross on 2014-05-05 4:15:34 PM

    @Blair
    Best of luck my friend.

  • Blair Anderson on 2014-05-05 5:01:06 PM

    @ Warren - Cheers!

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