Little risk of CMHC meltdown, says economist

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Economists are standing up to address concerns about the soundness of Canada Mortgage and Housing Corp’s portfolio, answering speculation that the insurer would need a bailout should the housing market go south.
 
Stéfane Marion, chief economist and strategist for National Bank Financial, says those fears are overblown considering Canadian borrowers, whose mortgages are insured by the CMHC, have had much stronger credit scores than their U.S. counterparts.
 
“There seems to be growing concern about the Canadian housing sector and the risks it poses to the CMHC and our banking system,” Marion said in a research note. “As some of the stories go, lending standards in Canada have been eased to the point where mortgages with high loan-to-value ratios (more than 80%) make up the same proportion of the market as in the U.S. in 2007. Even if this were the case, we would still argue that current underwriting standards in Canada are much more conservative than those applied in the U.S. before its housing bust.”
 
Prior to that implosion, more than a quarter of newly approved mortgages were for people with a FICO credit score below 620. FICO scores range between 300 and 850, with a score above 650 generally indicating a good credit history. Since the crisis, lending standards have tightened and only about 8% of mortgages are held by borrowers with scores of 620 or less, Marion writes.
 
“In Canada the proportion of newly approved CMHC homeowner loans with low credit scores was 7 per cent at the end of 2012, down from 13 per cent in 2009,” he said. “This very low ratio coupled with the norm of recourse mortgages on this side of the border makes the comparison between Canada and the US circa 2007 seem dubious.”
 
  • Paolo Di Petta | dipettamortgage.com on 2013-05-16 7:29:27 AM

    “In Canada the proportion of newly approved CMHC homeowner loans with low credit scores was 7 per cent at the end of 2012, down from 13 per cent in 2009,” he said. “This very low ratio coupled with the norm of recourse mortgages on this side of the border makes the comparison between Canada and the US circa 2007 seem dubious.”

    That's a pretty self-selecting sample, and pretty biased stat.

    Notice the "Newly approved"? That's because banks are tightening up, and the people that can't switch, stay with their current lender. Of course the number of "newly approved homeowner loans with low credit scores" decreased.

    More half-truths and biased stats. Let's get some numbers on the proportion of ALL homeowner loans with low credit scores and the change from 2009 to 2012. I'd wager there would be a lot less variance.

  • D P B on 2013-05-16 2:03:21 PM

    The credit score does not pay the mortgage.
    Income does!Maybe National Bank as well as other lenders should concentrate on this?

    I have hundreds of individuals with a credit score of 450 or below , but they haven't missed a mortgage payment , EVER....According to the finance minister and others , THIS CAN NOT BE THE CASE!

    Federal and Provivcial government layoffs (pending and past) coupled with industry will see people with 850 credit scores unable to pay their mortgages.Thus CMHC/Lenders will be stuck with homes over mortgaged because neighter of these instutitions cares about " CONDITION" - just MARKET.

    If a piece of junk is financed at high market prices , how is it not a piece of junk when forced to be sold?

    Let us get back to basics and

    Put Canadians in good QUALITY home.

    To Canadians home ownership is not a business/But to the mortgage industry
    " IT 'S BUSINESS"

    What a shame.
    All the best to all the high producers in 2013 and beyond.

  • risk manager on 2013-05-16 6:38:35 PM

    D P B

    sub 500 credit scores and you think this is "quality"? Do you even know what it takes to get a Beacon score this low? I don't, because I have NEVER seen one! If I did, I would laugh it, and the customer it belonged to, all the way out the door!

    "The credit score does not pay the mortgage.
    Income does!" This statement is only partially correct...income alone does not pay the mortgage if the customer does not have a willingness to pay. Anyone with a Beacon in this neighbourhood has clearly had issues and has demonstrated over time they have no willingness to pay! What reason in the world would I have to lend them money?

    It will cost me more in collection activities than I could ever make on the mortgage itself!

    You are probably charging this customer major $$$ just to try and find some sub-sub-prime lender willing to lend to him.

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