CMHC’s quarterly financials revealed today that the government will start charging the nation’s largest default insurer a “risk fee.”
Effective January 1, 2014, CMHC will pay the federal government an additional 3.25% of its insurance premiums, plus 10 basis points extra on the low-ratio bulk insurance (a.k.a. Portfolio insurance) that it sells.
“The fees compensate the Government for risks stemming from its guarantee of mortgage insurance,” says Department of Finance spokesperson Stéphanie Rubec. “This measure supports the Government’s continuous efforts to reinforce the housing finance framework.”
Private mortgage insurers (Genworth Canada and Canada Guaranty) have been required to pay a fee of 2.25% of premiums since January 1, 2013. CMHC’s fee is higher, Rubec says, because it “takes into account the 100% Government backing of CMHC’s liabilities as compared to the 90% guarantee of the private mortgage insurers’ obligations to lenders.”
CMHC projects the fees will amount to $50 million in 2014. Where will that money go? “The receipt of all fees from mortgage insurers are treated as part of the Government of Canada’s general revenues,” Rubec says.
As for how it will affect lenders and consumers, CMHC’s Charles Sauriol said “…The new fees are not anticipated to have an impact on the availability or cost of mortgage funding, nor the cost of buying a house.”
But he adds, “We are reviewing the impact on our low-ratio portfolio insurance product provided to lenders.” In speaking with one lender about this, its belief is that some or all of these fees will be passed through to lenders, but it should have little effect on them.
In terms of the consumer impact, one analyst estimates up to a 10 basis point rate boost. My guess is that the typical borrower won’t see anywhere near that increase.
Sidebar: CMHC said today that its insurance in force is $560 billion. That’s 6.7% below its legal limit, and $7 billion below its year-end 2011 level. As you may recall, CMHC announced in early 2012 that it would be rationing bulk insurance. Since then, the Finance Department has taken numerous steps to cut its exposure to mortgage insurance, tighten underwriting, and slow housing momentum.