Does the CMHC Encourage Perverse Behaviour?
This opinion piece in the National Post recently caught my eye. The author proposes that we should change the name of the “Canada Mortgage and Housing Corporation” to “Canada Moral Hazard Corporation” on the basis that the CMHC encourages “perverse behaviour”.
Now what kind of perverse behaviour is the CMHC being accused of? Interestingly enough, it’s for the main reason that CMHC insurance exists, which is to encourage lenders to make higher risk mortgages available to homebuyers.
The article goes on to discuss that while no one is suggesting that Canada is heading for the kind of meltdown the United States has seen with the privately owned (but government sponsored) Freddie Mac and Fannie Mae, we shouldn’t pat ourselves on the back just yet. The fact that CMHC is a government program – backed by tax payers, not shareholders – means that the mortgage insurance program is a potential time bomb waiting to detonate.
