During the heyday of the Canadian real estate market, it seemed as though there were plenty of things to criticize, and they all led to the same end result – a major collapse. One of those criticisms was the fact that CMHC, the Crown agency that insures mortgages from default for the bank, was taking on way too much risk and putting tax payers at risk. Not to mention the fact that with all those insured mortgages, and by a government agency at that, it was taxpayers that were really at risk.
Turns out, none of those fears will be realized now that CMHC has released their most recent stats.
During the second quarter of this year CMHC saw the amount of their mortgage insurance increase, when compared with the same time period last year. However, when comparing year-to-year, CMHC shows that the amount of insured mortgages actually decreased by 26 per cent. In total, new mortgages on homes fell by 19 per cent while home refinancing fell by a whopping 64 per cent.
“The new mortgage insurance parameters that took effect in July 2012 effectively refinancing at loan-to-value over 80 per cent,” reported the agency.
The drop in the amount of insurance is partially attributed to the mortgage rules Finance Minister Jim Flaherty instated last July. More so however, it’s likely that the new rules implemented by CMHC, limiting lenders to $350 million for the month of August, had an even bigger impact.
Not only does that show that there is no risk to taxpayers, but the agency also reported that they’ve actually helped boost the Canadian economy through the revenue they have generated. That revenue of course, comes from the mortgage insurance fees Canadian homeowners with that insurance are paying.
“Over the last decade, CMHC has contributed more than $17 billion towards improving the Government of Canada’s fiscal position through both its income taxes and net income,” the agency reported. “Of the $17 billion, CMHC’s insurance business has contributed more than $15 billion.”
And that may mean that not only is there no risk to the taxpayers, but CMHC is also helping taxpayers indirectly by possibly helping to keep those taxes low.
Benjamin Tal, CIBC deputy chief economist, is one of those analysts saying now that while the higher amount of CMHC insurance may have helped drive home prices up, these latest stats clearly show that there is no real risk to the Canadian people.
“You can argue to what extent there is too much insurance and to what extent this led to higher house prices in the last decade, but I think it would be strange to suggest we are putting taxpayer money at risk in any meaningful way,” he says.
“Even a correction of 10 to 15 to 20 per cent will not lead to a disaster scenario that some people talk about.”