Amid growing economic uncertainty in Canada’s housing market, mortgage finance expert Jane Londerville has called for a levelling of the playing field for government-backed residential mortgages.
In an interview with the Macdonald-Laurier Institute, Londerville, a professor at the University of Guelph, said the government guarantee of 90 per cent of the value of mortgages insured by private firms compared to 100 per cent of those insured by the CMHC was a “troubling distortion.”
While Londerville, who has an MBA from Harvard, praised Canada’s prudent lending criteria she said the current gap in insurance has resulted in an uneven playing field.
“Particularly during the financial crisis, we saw that CMHC continued to write mortgage insurance while there was a drop-off in what the banks sent to the leading private insurer, Genworth Financial Canada, because banks were so tight on capital that the extra capital reserves they had to hold to cover even that 10 per cent guarantee gap made a substantial difference to them,” she said.
Londerville called for the government to give all insurers the same level of protection.
“Either all participants should be at 100 per cent guarantee, or zero guarantee, or something in between. It could be the 90 per cent private firms now get, if the mortgage insurance portion of CMHC was spun off,” she said. “Such a change would mean more competition in the mortgage insurance business.”
She said the imbalance was evident in CMHCs 70 per cent of the market of mortgage insurance, the lion’s share not accounted for by differences in services provided by CMHC versus its competitors.
Londerville wrote a 2010 paper for MLI suggesting the government put CMHC under the supervision of the Office of the Superintended of Financial Institutions; change federal legislation for covered bonds and close the insurance gap between private lenders and the CMHC.