CMHC’s responses, made Friday, countered various critical points made by Madani and Poschmann in their reports.
Among other things, CMHC stated:
The Canadian mortgage model “withstood the test of the economic downturn, when housing markets in the U.S., United Kingdom, and Ireland failed.”
“The average home equity within (CMHC’s) insurance portfolio is 45%” (“That’s a far cry from the five per cent or less that has been widely — and wrongly — reported in the media,” said CMHC President, Karen Kinsley, in this November speech.)
CMHC “operates at no cost to taxpayers” and, in fact, has earned $12 billion for Canadian taxpayers over the last decade. (This is after setting aside the necessary reserves.)
“CMHC has almost twice the minimum level of reserves” required by OSFI, Canada’s federal financial system regulator
Using foreign insurers to diversify Canadian default risk has “inherent risks” (This became clearly evident during the recent credit crisis when private insurers pulled back from, or out of, the market.)
CMHC VP of Policy and Planning, Douglas Stewart, also referred to these comments made by Kinsley in November (our comments in italics):
Housing represented over $307 billion in spending in 2009, about 20% of GDP.
“Canada, unlike the U.S. for instance, does not have an explicit policy goal of increasing the rate of homeownership. Rather, we encourage the availability of housing across a variety of tenure types.”
CMHC’s Canada Mortgage Bond program promotes “competition among a wide range of lenders, helps keep interest rates low and supports innovation, leading to more choice and price competition for Canadian borrowers.”(Without the CMB, Canadians could immediately say goodbye to several non-deposit-taking Canadian lenders—each of which competes effectively for homeowners’ business, thus keeping the banks in check.)
Canadian lenders have “a strong financial interest in ensuring the borrower doesn’t take on excessive risk that they can’t handle.”(Here is our recent story on this topic.)
“In the event the borrower does run into difficulty,” lenders are responsible for “employing all reasonable means — including the related costs — to help bring or keep the loan current before seeking any payment from CMHC if the loan was insured.”
“Research consistently shows that Canadians are working hard to pay off their mortgages: half of (CMHC) insured borrowers consistently make some form of accelerated payment.”
CMHC’s “latest stress testing results concluded that when applying all 10,000 economic scenarios, combined with plausible adverse business scenarios, CMHC had a less than one half of one percent probability of insolvency.”(A less than 1 in 200 chance of insolvency is reasonably acceptable, even for a major mega-catastrophe insurer, including huge property/casualty companies who insure against random multi-billion-dollar risk exposures [such as hurricanes for example])
“CMHC is the only mortgage insurer that serves our large rental market, the financing of nursing and retirement homes, and often is the only insurer approving applications in rural and remote areas of the country. In 2009, close to 40 per cent of CMHC’s mortgage loan approvals were in these areas.”