Why do we need CMHC?

If you are getting a mortgage and putting less than 20% down on that home purchase you were required to get mortgage insurance.  This insurance is provided through two companies, one being CMHC.

Who is CMHC?

Canada Mortgage and Housing Corporation (CMHC) is Canada's national housing agency. Established as a government-owned corporation in 1946 to address Canada's post-war housing shortage, the agency has grown into a major national institution. CMHC is Canada's premier provider of mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research.

On January 1, 1946, the Central Mortgage and Housing Corporation was created (changed to "Canada" Mortgage and Housing Corporation in 1979) to house returning war veterans and to lead the nation's housing programs.

CMHC's basic functions were to administer the National Housing Act and the Home Improvement Loans Guarantee Act, and provide discounting facilities for loan and mortgage companies. The capital of the Corporation was set at $25 million (a substantial amount for the times), and a reserve fund of $5 million authorized to be accumulated from profits. This requirement and capital structure are still in effect today.

National Housing Act

The purpose of the Act is to promote the construction of new houses, the repair and modernization of existing houses, and the improvement of housing and living conditions.

Canada Mortgage and Housing Corporation Act

The purpose of the Act is to incorporate the Canada Mortgage and Housing Corporation, Canada's national housing agency, and provides the objects and powers of the Corporation

Premiums:

Loan-to-ValuePremium on Total LoanPremium on Increase to Loan Amount for Portability and Refinance
Standard Premium Self-Employed without 3rdParty Income Validation Standard Premium Self-Employed without 3rdParty Income Validation**
Up to and including 65% 0.50% 0.80% 0.50% 1.50%
Up to and including 75% 0.65% 1.00% 2.25% 2.60%
Up to and including 80% 1.00% 1.64% 2.75% 3.85%
Up to and including 85% 1.75% 2.90% 3.50% 5.50%
Up to and including 90% 2.00% 4.75% 4.25% 7.00%
Up to and including 95% 2.75% 6.00% 4.25%* *
90.01% to 95% -
Non-Traditional Down Payment***
2.90% N/A * N/A
Extended Amortization Surcharges
Greater than 25 years, up to and including 30 years: 0.20%
Greater than 30 years, up to and including 35 years: 0.40%

Should we be concerned about the sustainability of CMHC? 

Lately there has been increasing numbers of announcements of CMHC spending.  Some are grants some are loan guarantees to different sources other than home owners.  All those premiums paid by home owners being used to build affordable housing is great, but at what cost?  Are we at risk that CMHC will not have money to save the banks from a collapse of American proportions?

Here is a list of recent announcements:

Affordable Housing in Yukon Gets a $60-Million Boost
May 22, 2009
 
Affordable Housing in Northwest Territories Gets a $117-Million Boost
May 22, 2009
 
Affordable Housing in Nunavut Gets a $117-Million Boost

Affordable Housing in Newfoundland and Labrador Gets a $93 Million Boost
May 22, 2009
 
Affordable Housing in Prince Edward Island Gets a $13 Million Boost
May 22, 2009
 
Affordable Housing in Saskatchewan Gets a $161 Million Boost
 
Affordable Housing in Nova Scotia Gets a $128 Million Boost

Part of the federal government's $1.9 billion commitment for housing and homelessness programs announced by the Government of Canada in September 2008, which extended the Affordable Housing Initiative and the renovation programs for low-income households for two years.

$1.9 Billion seem like a lot to you?  How much surplus does CMHC have or rather used to have?

The concern would be that if a large number of foreclosures occur similar to our friends in America, would CMHC be able to weather the storm after spending money of projects to help affordable housing and stimulate the economy?  Perhaps that is a debate on whether or not owning a home is a right or a privilege?

Perhaps the bigger question is:

Why do we have to pay premiums for Insurance when the program has this kind of a surplus?

OTTAWA, October 10, 2008 - Canada Mortgage and Housing Corporation (CMHC) will purchase up to $25 billion in insured mortgage pools as part of the Government of Canada's plan, announced today, to maintain the availability of longer-term credit in Canada.

The latest financials on CMHC can be found in a PDF here.

Let me know your thoughts.

Your Friend in Real Estate,

Patrick Galesloot

on Twitter:  @pgalesloot

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Patrick Galesloot

Patrick Galesloot

Broker/Owner
CENTURY 21 Advantage
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