Canada Mortgage and Housing Corp. is raising its mortgage loan insurance premiums effective May 1, the Crown corporation announced Friday.
The increases will be for new policies, not those that are already insured. Premiums will rise by about 15 per cent on average, CMHC said.
“The higher premiums reflect CMHC’s higher capital targets,” vice president Steven Mennill stated in a press release. “For the average Canadian home buyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market.”
Mortgage insurance is mandatory in Canada for home buyers who have a down payment of less than 20 per cent. The insurance compensates lenders, or banks, in situations where the mortgage borrower defaults. The banks are technically responsible for the premiums, but they are almost always passed on to the buyer.
Higher mortgage insurance premiums fit with Finance Minister Jim Flaherty’s desire to reduce the relative risks that taxpayers are assuming by way of the mortgage insurance system.
Mr. Flaherty has repeatedly stated that CMHC has grown to become something that extends far beyond its original mandate, and he has taken numerous steps to restrict its growth. The Crown corporation was created in 1946 to help returning Second World War veterans find homes. It has become one of the country’s largest financial institutions, one that has done much to fuel the housing market.
International observers, including the International Monetary Fund (IMF), have urged Ottawa to further reduce government’s role in the mortgage insurance market so that more housing risk is shared with the private sector.
CMHC has two private-sector competitors: Genworth MI Canada, and Canada Guaranty. (The federal government backstops CMHC to the tune of 100 per cent, and its private-sector competitors to the tune of 90 per cent.) The Crown corporation’s two rivals have been telling Ottawa that they would like to raise premiums, but have been reluctant to do so because CMHC is so dominant in the market. They say that higher capital requirements have crimped profits.
CMHC had not raised its prices since the late 1990s, and actually lowered them between 2003 and 2005.
The federal government appointed Evan Siddall, a former investment banker and special adviser to the governor of the Bank of Canada, as CMHC’s new chief executive officer at the start of this year.
The Globe and Mail
Published Friday, Feb. 28 2014, 11:04 AM