File photo of the Canada Mortgage and Housing Corporation ( CMHC ) complex in Ottawa.Sean Kilpatrick/The Globe and Mail
Canada Mortgage and Housing Corp.'s insurance volumes dove 37 per cent in the latest quarter from a year ago, as Ottawa seeks to rein in the Crown corporation's growth.
The bulk of the decline stems from the government's decision to cap the total amount of insurance that CMHC can have in force at $600-billion, a move that has forced the mortgage insurer to shrink the amount of portfolio or bulk insurance it offers banks to virtually nil. (Portfolio insurance enables banks to protect broad swaths of mortgages that aren't required to be insured, which reduces capital requirements for the banks).
But Finance Minister Jim Flaherty's decision to tighten up the country's mortgage insurance rules this summer have also had an impact, cutting into CMHC's core line of business.
Mortgage insurance is mandatory when the borrower puts less than 20 per cent down – so-called "high-ratio" mortgages. Effective July 9, Mr. Flaherty sought to make it harder for some individuals to obtain insured mortgages, in a bid to take some steam out of the housing market and rising consumer debt loads. His changes included cutting the maximum length of insured mortgages from 30 years to 25, eliminating government-backed insurance on homes above $1-million, and lowering the maximum amount homeowners can borrow when refinancing to 80 per cent from 85 per cent of the value of their homes.
In what appears to be a carefully worded statement, CMHC said in its quarterly results that following the July changes "homeowner insurance volumes are expected to be lower than originally forecasted at the beginning of the year. The specific impacts of these changes are difficult to isolate from more general economic and housing market trends."
While the decrease in national home sales that's been witnessed since Mr. Flaherty's changes has been attributed by many real estate professionals to the new rules, deputy finance minister Michael Horgan said a month ago that it's too soon to make that link.
Indeed, the changes have had more of an impact on refinancings than on new purchases.
In the three months ended September 30, CMHC saw its volumes of mortgage insurance for home buyers fall about 6 per cent from a year ago, while refinancing volumes were down 22 per cent. "The new mortgage insurance parameters that took effect in July 2012 effectively eliminated the high ratio refinance market," CMHC noted.
In the meantime, its volumes of insurance on multiunit properties were up about 22 per cent. CMHC is the only mortgage insurer that covers multiunit residential buildings.
Volumes of portfolio insurance were 98 per cent lower than a year ago.
The Crown corporation's total insurance in force has edged up 2 per cent so far this year to $575.8-billion, from $566.5-billion at the end of 2011. But it says that borrowers are making roughly $60-billion to $65-billion worth of mortgage payments each year on loans it insures, which will help to offset the new insurance it sells and keep it below its $600-billion cap.
The insurer's net claims expense in the quarter was $157-million. While that's 15 per cent higher than a year ago, it's actually lower than what CMHC was banking on and the Crown corporation's actual losses from claims were down (but it put more aside to cover future claims).
Mortgage insurance pays the bank when a homeowner defaults on their mortgage. The insurer recoups some of the money through the sale of the foreclosed home.
CMHC said that its arrears rate is 0.34 per cent, and has been improving in both its traditional mortgage insurance business as well as its portfolio business this year.
Total profit for the quarter came in at $381-million, down from $420-million a year ago.