CMHC cutbacks announced
The budget announcement quietly slipped in changes to government-backed mortgage insurance, including reductions to the amount of new guarantees CMHC will provide.
“The Government continues to adjust the housing finance framework to restrain the growth of taxpayer-backed mortgage insurance and securitization,” the budget report states. “These measures will support the stability of the housing sector and the financial system by increasing market discipline in mortgage lending.
“They will also reduce taxpayer exposure to the housing sector without compromising the availability of reasonably priced mortgages.”
This should come as no surprise to a number of brokers, with Finance Minister Flaherty recently stating CMHC has evolved past its initial intention.
“Regrettably, CMHC became something rather more grand, I think, than it was intended to be,” Flaherty told reporters in December. “We’ll see over time what that role should be.”
Of course, the federal government has adjusted the rules for CMHC mortgage insurance four times in the past five years, including establishing a maximum amortization period of 25 years for mortgages with down payments less than 20 per cent.
However, Tuesday’s budget also announced a number of further changes to the Canadian Mortgage and Housing Corporation, which includes reducing the amount of new guarantees CMHC is authorized to provide.
•For 2014, Canada Mortgage and Housing Corporation (CMHC) will pay guarantee fees to the Receiver General to compensate the Government for mortgage insurance risks. This will align CMHC with guarantee fees paid by private mortgage insurers.
•For 2014, CMHC is reducing its annual issuance of portfolio insurance from $11 billion to $9 billion.
•The Minister of Finance has reduced the amount of new guarantees that CMHC is authorized to provide under its 2014 securitization programs to $80 billion for market National Housing Act Mortgage Backed Securities and to $40 billion for Canada Mortgage Bonds.
• A new legislative framework for covered bonds is now in effect. This framework has created a fully private source of funding using only uninsured mortgages as collateral. It has been recognized internationally for its high standards. Since July 2013, Canadian lenders have successfully issued more than $14 billion in covered bonds in three different currencies.
• The Government has consulted stakeholders and will bring forward measures to implement Economic Action Plan 2013 initiatives to tie portfolio insurance to the use of CMHC securitization vehicles and prohibit the use of government-backed insured mortgages as collateral in securitization vehicles that are not sponsored by CMHC.