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Refinance Activity Plummets 40%, Says CMHC

CMHCTighter mortgage rules are hurting CMHC’s default insurance business. This is most evident in insured mortgage refinances, which have plunged a remarkable 40%.

That’s due in part to the government’s move on March 18, 2011 to limit insured mortgage refinances to a maximum of 85% loan-to-value (instead of 90% previously).

That rule continues to force thousands of Canadians to pay higher interest rates on debt that they used to be able to refinance and consolidate. The government’s hope is that this will encourage homeowners to borrow more responsibly, knowing that they can’t rely on home equity to bail themselves out.

Overall, CMHC says its insured mortgage volumes were down 13% Y/Y. That’s 20% below the volumes it anticipated. It attributes this to:

  1. A cut in the maximum amortization on insured high-ratio mortgages (from 35 years to 30 years)
  2. Weaker housing activity
  3. A drop in its mortgage insurance market share.

The above statistics come from CMHC’s second quarter (Q2) financial report. The nation’s largest default insurer must now issue these quarterly reports to comply with the revised Financial Administration Act.

Here are a few other tidbits from CMHC’s Q2 report:

  • CMHC predicts that “posted mortgage rates should remain relatively flat for most of 2011 before increasing slightly in 2012.”
  • It says “Claims volumes (on mortgage defaults) have been lower than expected.”
  • The average credit score of a CMHC-insured high-ratio mortgage is 723 (vs. 720 last year).
  • CMHC’s arrears rate is 0.42% (near the industry average of 0.41%).
  • The average amortization of a CMHC-insured mortgage:  24.6 years (vs. 23.9 years in the same period of 2010).
  • The ratio of CMHC-insured mortgages with 20%+ equity: 72% (vs. 69% one year ago).
  • 26.7% of residential mortgages were securitized (vs. 26.2% last year).

Other notes from CMHC’s 2010 annual report:

  • CMHC is the only insurer serving multi-family residential (5+ units), nursing and retirement, and many rural and smaller markets. These areas comprised 44% of its high ratio business in 2010.
  • CMHC says it limits risk such that its probability of insolvency is less than 1 in 200 (0.5%). It stress tests its portfolio with risk models that factor in 10,000 economic scenarios. Among other things, those scenarios assume both extreme unemployment and significant home price depreciation lasting “a number of years.”
  • 70% of CMHC-insured borrowers have Beacon scores over 700.
  • CMHC earned $1.76 billion in 2010. Since 2001, it has contributed $14 billion (in taxes and profit) towards reducing the government’s annual deficit.



Rob McLister, CMT

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Last modified: April 26, 2017

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