Canada’s federal housing agency said it would underwrite less mortgage insurance in 2014 as the government adds more restrictions to the kind of insurance offered in a bid to keep the country’s hot housing market from overheating.
The Canada Mortgage and Housing Agency said on Monday that it expects the amount of insurance in force to continue to decline in 2014 to $545-billion, down 2.2 per cent from $557-billion in 2013 and 3.9 per cent from a high of $567-billion in 2011, at the height of the post-recession housing expansion.
Canada’s housing market has risen dramatically if unsteadily since the 2008 financial crisis. The CMHC is on the hook to bail out lenders if the market collapses and borrowers default, as it provides the majority of mortgage insurance in Canada.
Critics of the CMHC said the agency was risking taxpayer money when it neared its $600-billion ceiling on the amount of outstanding insured loan amounts in 2011 and 2012. Government moves to tighten mortgage lending rules have helped slow the housing market and lower the agency’s insurance book.
CMHC senior vice-president Steven Mennill said the decline was part of a normal repayment pattern and comes as the agency trims the value of new insurance it is prepared to write on the mortgages Canada’s lenders – mostly the nation’s biggest banks – offer to home buyers trying to get into the booming market.
“One of the factors that is important in this is we have reduced the total amount of portfolio insurance that we are prepared to underwrite in any given year – the insurance provided to lenders on a post-facto basis for portfolio, low-ratio loans – from $11-billion to $9-billion, in 2014,” Mennill told reporters on a conference call.
“So that explains much of the reduction in new business going forward.”
Last month the CMHC said it would no longer offer mortgage insurance for those buying second homes and self-employed borrowers without third-party income validation, as part of its review of products to reduce taxpayer exposure to risk.
The two products account for less than 3 per cent of CMHC’s insured business volume.
Mortgage insurance is required for all Canadians with less than a 20-per-cent down payment on a house who borrow from a federally regulated bank. CMHC provides the bulk of that insurance, 100-per-cent backstopped by the federal government.
Canada’s Conservative government has tightened mortgage rules repeatedly over the past five years in a bid to prevent Canadians from taking on too much debt, including cutting the maximum length of a mortgage to 25 years and limiting the amount of equity owners can take out of their homes.
The CMHC also said it would try to improve the quality and amount of data it shares on the mortgage market in its next quarterly financial report, after a major private-sector bank economist criticized the lack of data on Canada’s housing market, saying it left home buyers and investors flying blind.
The next report typically comes at the end of May.
CMHC said it expects to once again issue about $40-billion in Canada mortgage bonds in 2014, in line or slightly below what it has issued in previous years.
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