The man who wrote a report urging the privatization of the CMHC back in 1979 says today’s housing market problems were predicted more than three decades ago.
“It looks like we’re going to see the same problems reappear and nothing’s been done to alleviate them,” Larry Smith, a professor emeritus at the University of Toronto, specializing in real estate, told the Financial Post. “I’m pretty disappointed. “
Smith, the former deputy chair of a federal task force set up almost 35 years ago to study the value of privatizing the CMHC, only sees history repeating itself.
The 1979 report he helped generate and which was never released to the public suggested taxpayers would ultimately be left subsidizing an overvalued housing market if a significant correction occurs.
The report states: “In each Annual Report from 1976 onwards, reference has been made to the diminishing viability of the corporation under present financial and legislative arrangements. Developments in 1979 reinforce the need either to change these arrangements or the explicit recognition of CMHC’s financial problems.”
Smith found that the increase in claims started to increase in 1977, accelerated the following year, then doubled in 1979. “All these claims resulted in the Fund acquiring real estate that could not be readily sold because of long-standing constraints on the Corporation’s real estate practices….”
Other analysts don’t see any such crisis now looming for the Crown corporation, pointing to absence of any apparent spike in defaults or CMHC claims.
Nonetheless, the housing agency is currently looking for a permanent CEO and president for the now departed Karen Kinsley, while finance minister Jim Flaherty
has directed OSFI to monitor CMHC and its $563 billion mortgage portfolio “very closely.”
Robert Kelly – a former CEO for the Bank of New York Mellon Corp. – was appointed chairman of CMHC. That selection by the office of the Finance Minister was viewed by many as a means of bolstering the government’s oversight of the federal agency.
The CMHC is now one of the country’s largest financial companies, owing to its substantial portfolio of mortgage guarantees of outstanding home loans, which constitutes roughly 30 per cent of Canada’s GDP.
The CMHC has come under fire for undercharging for its policies, facilitating speculators and banks to push the risk of default on hundreds of billions of dollars of mortgages onto the shoulders of government.