Ottawa's attempts to play a smaller role in Canada's housing market are having a noticeable impact, as the federal housing agency reported the total value of its mortgage insurance continued to shrink in 2014 driven by a series of measures to tighten mortgage rules.
The total value of Canada Mortgage and Housing Agency's mortgage insurance fell $14-billion in 2014 to $543-billion, the housing agency said in its annual report. It expects insurance to decline another $10-billion in 2015 as borrowers repay their loans faster than CMHC writes new premiums. The federal government has capped CMHC's insurance at $600-billion.
Federal officials have been vocal about their plans to limit taxpayer exposure to the housing market and encourage the growth of private sector mortgage financing and insurance.
In an effort to shrink its presence in the market and boost its capital reserves, CMHC hiked premiums 15 per cent last year and raised them again earlier this year for borrowers with down payments of less than 10 per cent. Higher insurance fees brought in an additional $7-million in new revenue for the federal agency last year.
It scrapped insurance for second homes and self-employed borrowers without proof of income, as well as for condominium construction financing. The agency also moved to slow growth of its portfolio insurance, which allows lenders to take out insurance on bundles of uninsured mortgages so it can securitize and sell them, by lowering its annual limit to $9-billion from $11-billion.
In December, the Crown agency also boosted the fees it charges lenders to sell off mortgages through its securitization programs, a measure that came into effect last month, saying it was "an important step toward further reducing taxpayer exposure to the housing sector and encouraging alternative funding options in the private market."
CMHC reported $422-billion in total guarantees for mortgage-backed securities, up from $398-billion a year earlier. Roughly one-third of all Canadian mortgages are securitized through the program.
CMHC president Evan Siddall said Thursday that recent steps taken by housing agency have been effective and the agency has no plans to further limit its mortgage insurance programs this year.
"We're quite comfortable with the reduction in risk at CMHC and with the current levels of market share," he said, adding the agency is still exploring some policy ideas to reduce its exposure.
One idea CMHC has floated is risk-sharing with lenders, likely through a deductible on its mortgage insurance. That would require a change in federal government legislation, Mr. Siddall said. "We continue to look at different options over the medium-term, but there's no progress to announce right now."
Efforts to shrink the federal government's role in mortgage financing come as private insurers such as Genworth MI Canada Inc. report they're working to expand their presence in market, particularly among smaller lenders. Despite the government pull-back, Ottawa guarantees private mortgage insurance up to 90 per cent, meaning it still shoulders the bulk of the risk.
The federal agency reported its loss ratio, a measure of claims paid compared with new premiums written, rose slightly in 2014 to 19.4 per cent, although it remained far below its recent peak of 31 per cent in 2011.
While CMHC saw a drop in claims paid for homeowner mortgage insurance, claims paid on multiresidential condo and apartment projects jumped from $4-million to $28-million due to "several large claims paid in 2014." (The agency wouldn't discuss details of the projects involved.) CMHC has paid out close to $3.7-billion in insurance claims since 2007, although its annual numbers have been steadily dropping over the years. The estimate average claim is around $70,000, the agency said, although it doesn't publish official details of claims paid.
CMHC expects the housing market to slow slightly over the next two years, predicting national average resale home prices will rise 1.5 per cent this year and 1.6 per cent next year, reaching $420,900 by the end of 2016. It forecast growth will be slower outside of Toronto and Vancouver.
Despite its expectations for a slowdown, CMHC said it was lowering the amount it sets aside to pay claims by 10.5 per cent, to $778-million in 2015, citing "improving economic conditions including rising house prices and lower unemployment rate."