Here they are! The changes have been made to mortgages in Ottawa, and Finance Minister Jim Flaherty is hoping that this is the only extra step the government will have to make when it comes to cooling the housing market and allowing it to “correct itself,” as he’s stated before he’s hopeful it will do. But unlike the changes he’s made before, homeowners aren’t likely to feel this one as much; but the banks sure will! In yesterday’s parliamentary proceedings, Flaherty outlined the major changes that need to happen, and are now going to happen, with CMHC. The two major changes include who will now be governing the Crown corporation; and how they sell their covered bonds.
The bonds issue was a big one, with Flaherty also pointing to that earlier this week and stating that, “this is not the way most people think of CMHC.” If you read our post yesterday on the issue, you’re aware that these bonds are actually packages of bulk mortgages that the banks sell to investors. The mortgages are usually backed (or guaranteed) through CMHC, and the bank gets to take some of their liabilities off their balance sheet. However, the majority of those guaranteed Canada and Toronto mortgages don’t even need to be guaranteed because they’re conventional mortgages where the homeowner has put up at least 20% of a down payment. That’s causing the CMHC to nearly hit their $6 billion ceiling. But no more.
Jim Flaherty says that, “There is some debate about what should be in that envelope [of investments.]” And while banks will still be able to use these low-ratio, conventional mortgages as part of their covered bonds, the amount of those conventional mortgages is most likely going to be significantly reduced. Banks will be able to unload fewer of them (and unload fewer liabilities at the same time); they won’t be able to give out as many mortgages, helping us to curb our debt; and the CMHC won’t have to insure conventional mortgages, leaving them more room to insure mortgages that actually need it.
But, there’s an even bigger change coming to CMHC, and that’s who governs it. Currently that responsibility falls on the Department of Human Resources and Skills Development Canada, but it’s about to change. This was an appropriate department for it when CMHC first came into existence, because it was really just to help with social housing. But given how the Corporation, and its purpose, has changed, it will now be considered a financial institution and therefore, be governed by the Office of the Superintendent of Financial Institutions (OSFI,) the body that governs major, federally-mandated banks in Canada. While the housing agent will report to the OSFI, the Department of Human Resources will also have a role in the operations and running of the corporation.
So far analysts and experts are in agreement that these changes will be helpful in correcting and tweaking Canada’s housing market, without making major changes and overhauls. Do you?
