The great beast at the centre of the Canadian housing market is set to start shrinking at last.
A string of needed reforms in the past year to Canada Mortgage and Housing Corp, capped by Thursday's decision by Finance Minister Jim Flaherty to further limit mortgage insurance availability, mean that for the first time in the recent housing boom the Canadian taxpayer's risk of loss is set to decline.
The growth of CMHC had understandably worried Canadians who were paying attention. Here was a beast that ranks among the biggest financial institutions in Canada, larger than some of our smaller banks, expanding at an astounding pace with seemingly minimal oversight from regulators and the politicians in charge.
Year by year, it would blow past its sales targets, with the amount of insurance it was writing ballooning. The insurance book at CMHC grew from $345-billion at the end of the 2007 fiscal year to $567-billion in 2011. That's a compound annual growth rate of a little more than 13 per cent.
Certainly, there was no credible suggestion that CMHC was undercapitalized or badly run. The mortgages it insured were performing. The overall health of the borrowers was good, with significant equity in the homes. The operation made money for the government.
But the unfettered growth was still worrisome for anyone watching closely. Any mistake on this scale would no doubt prove costly, and the government and the taxpayer would be the last line of payment.
As the insurance book grew, the government steadily raised the cap on what was allowed, in what looked suspiciously like a rubber-stamp process.
The regulator that should have been in charge, the Office of the Superintendant of Financial Institutions, was not. The board of directors was not, on the face of it, qualified to run a huge financial institution, having been drawn largely from the development and building business. Disclosure was rare, and often well behind the times.
All that has changed. The company now discloses results quarterly. Earlier this year, Mr. Flaherty put OSFI in an official oversight role. He signaled in an interview with The Globe and Mail that the board was likely to be upgraded to something more appropriate for a financial institution of this scale. He refused to raise the cap on insurance in force beyond the current $600-billion.
Now, the move to end insurance for high-ratio mortgages on homes valued at more than $1-million and to further curtail other loans that require insurance by demanding faster paydowns will enable the CMHC to further curtail its growth.
CMHC is actually planning to allow its book to shrink in the current year, to about $557-billion, as mortgages are paid off faster (about $60-billion a year) than new insurance is originated.
With Thursday's changes, CMHC should be well on its way to actually doing that, and returning to a more focused mandate of helping first-time homebuyers rather than insuring any and all comers who could put up a home as collateral.
For the Canadian taxpayer, there are more than enough challenges. The economy is shaky. The job market is tough. Government finances are abysmal.
Ensuring that CMHC is not going to be an added burden is absolutely the right move.