CMHC takes on its critics

CMHC takes on its critics

In a rare move, Canada Mortgage and Housing Corporation responded directly to recent criticism about its role in Canada’s mortgage system.
 
In a letter released to the media on Monday, Douglas Stewart, CMHC’s VP, policy and planning took aim at Finn Poschmann of the C.D. Howe Institute, who recently expressed in a report that Canadian taxpayers shouldn’t be exposed to the liabilities held by CMHC, when private insurers could pick up the slack.
 
“[Your report] suggests that under its recommended model, there could be participation from foreign insurers which would help diversify financial market risks beyond Canadian borders,” says Stewart. “Prior to the economic downturn, a number of foreign mortgage insurers had entered the Canadian marketplace. However, during the downturn, their parent companies experienced significant financial losses, and the majority of these mortgage insurers exited the Canadian market, along with their capital. Risk diversification through foreign insurers has its own inherent risks.”
 
Stewart also reiterated CMHC’s stance that Canada’s current model withstood the recession and that “in addition, CMHC’s prudent underwriting practices and market presence have contributed to the stability and resiliency of Canadian housing finance.”
 
The C.D. Howe Institute wasn’t Stewart’s only intended target. He also sent a letter to David Madani of Capital Economics who recently predicted that housing prices would drop 25 to 35 per cent over the next two years. Madani also stated that “the fall in (the predicted) house prices would also have significant financial implications for CMHC. According to our calculations, a sharp decline in house prices could lead to losses of around $10 billion, which would be enough to wipe out all of CMHC equity.”
 
Stewart took Madani to task and refuted the assumptions which Madani used in making his calculations. Stewart said CMHC’s total insurance-in-force is $473 billion, not the $800 billion Madani based his report on. “The $300 billion in securitized mortgage guarantees should not be added to the level of insurance guarantees as the underlying mortgages are already insured by CMHC or the private sector,” said Stewart.
 
 
2 Comments
  • Marjorie Stewart 2011-02-16 3:41:15 AM
    It's very easy for armchair critics (in particulat right wind idealogues that would have us driving on potholed roads while 1/3 of the children in this country are below the poverty line as long as they have low taxes or better yet no taxes) to tear everything that aids moiddle and lower class Canadians to obtain a little bit of the 'dream'. When it comes to facts however, they always seem to fall a bit short of the mark. Congratulations Mr. Stewart, for standing up to their misinformation and propaganda!
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  • Jason Dornstauder AMP 2011-02-16 9:27:04 AM
    I have been battling this type of stupidity for the past few years - There is nothing I despise more than people with limited perception who substitute understanding with perpetual rants of stupidity. I am looking at you Poschmann and Madani. Your limited understanding of the facts should have prevented you from spouting off. In know way were your incoherent ramblings a benefit to the average Canadian. In fact - you have made everyone who read your reports DUMBER. Good for CMHC for growing a pair of Stones to combat this type of blissful ignorance! I suppose it's time for Genworth to join the fight. Mr. Stewart - you certainly deserve thanks from all of us in the Mortgage Professionals Community! Keep up the Great Work!
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