On Thursday, CMHC head Karen Kinsley spoke before a Senate committee about changes that will impact the nation’s largest mortgage insurer once Bill C-38 becomes law.

Those changes include:

• New supervision by Canada’s financial regulator, OSFI
• A revised mandate, and
• Changes to CMHC’s role in the covered bond market.

(For more on these issues, see: CMHC & Covered Bonds – The Impact.)

Regarding CMHC’s new watchdog (OSFI), Kinsley told senators:

• “We’re ready for [OSFI] oversight.”
• “…Until OSFI comes in we don’t know what the nature of their inquiries are going to be.”
• “We do follow OSFI’s guidelines today as it relates to capital management and other of their governance guidelines.”
  (CMHC operates at over two times the minimum capital required by OSFI.)
• “…We have to be held, and we welcome being held, to heightened levels of governance and oversight.”

Regarding whether OSFI will make its review of CMHC’s operations public:

• “My understanding is no. In fact, there are provisions specifically addressing this in the bill. Like other reviews and work that OSFI does, that information is confidential.”

On covered bonds:

• With covered bonds, “the (pending) legislation would provide that underlying mortgages can only have a maximum loan-to-value of 80%.”
  (This is a significant new restriction that could raise banks’ funding costs and mortgage rates in the short term, but lower the government’s insurance exposure and encourage sounder risk-based pricing in the long-term.)

On CMHC’s mandate:

• “In the National Housing Act today, we have objectives with respect to our commercial activities, for instance: to increase the supply of funding to mortgages, the accessibility of housing for Canadians, (and) the general well functioning of the housing market.”
• “While the provision of the Bank Act is still in place, there will always be, by legislation, a need for insured mortgages.”
• CMHC’s mandate is being updated “to promote and contribute to the stability of the financial system, including the housing market…That broader reference to the financial system is not in our objectives today and is being added explicitly.”

On CMHC’s financial performance:

• “Our total revenues last year were about $14 billion (with) net income (of) $1.5 billion. As has been noted, we are a large financial institution.”
• “Certainly we have had losses if you think of the recessions in the 1980s and 1990s.” (Claims are the “nature of the business,” she said.) “Since we have become commercialized, which was in the 1990s, we have been able to handle all of those cyclical patterns within the revenues that we collect on premiums and fees.”

Following Kinsley’s appearance, representatives from OSFI spoke with the senators. OSFI said it will do “at least one risk assessment” of CMHC each year, starting “at least by next year.”

“Our supervisory approach for CMHC will be similar to what we do today for private mortgage insurers,” said OSFI Senior Director, Penny Lee.

As with its supervision of Genworth and Canada Guaranty, OSFI will not make its reporting of CMHC public for confidentiality reasons.

Here is a video of the above proceedings.

(Note: The comments in italics are ours.)

Rob McLister, CMT

Last modified: May 24, 2022