CMHC Announces an Announcement

CMHCCMHC will be making an announcement Friday at 11 a.m. EST. They’ve notified reporters well in advance, which is somewhat unusual.

Twitter is abuzz with speculation on what the announcement might entail. And everyone will have two more days to stew over it.

CMHC has done a banner job at preventing leaks, as no executives I’ve talked with have any clue what it might be. The only thing we know is that it’s not about CMHC being privatized.


Rob McLister, CMT  (email)

  1. Judging from the fact it’s occurring before markets are closed (at 8 AM Pacific Time), I’m guessing it won’t have anything to do with the government announcing they’re getting out of the business of guaranteeing Genworth and Canada Guaranty insured mortgages going forward.
    However, because of the pre-announcement of the pending announcement news release, I’d tend to think it’ll be major. My “money” would be on increasing the down payment required for CMHC (or Genworth/Canada Guaranty) insured mortgages from the current 5% to 10%.
    Alternatively, my “second” guess would be increasing the amount at which mortgage default insurance would be required from the current less than 20% down to less than 30% down.
    I don’t think it’ll be a relatively small announcement, like the government reducing the “cap” on insured mortgages.
    What are YOUR thoughts?
    Cheers,
    Doug

  2. Isnt it rather absurd to make an announcement about an announcement!! Its like the old saying “How do you keep an idiot in suspense…..I’ll tell you tomorrow”

  3. I’m guessing the announcement will be an insurance restriction on multi-res (5+ unit) condo development financing.
    I’ll be buying domestic beer if I “win”, but expect an import if I “lose”.

  4. Doug, You’re spot on. My sources from inside the chamber of doom tell me they’ve been in meetings for the past 2 weeks and the announcement will be that CMHC will now require borrowers to have 35 per cent downpayment. Monoline Lenders will be licking their chops come Monday morning.

  5. That doesn’t make sense with the recent direction and mandate of CMHC. That would mean that any mortgage with less than 35% equity would require insurance – increasing taxpayer exposure to the housing market which is not the stated goal/concern of the evil leprauchan. Sure, it would increase revenue with minimal risk exposure but it doesn’t souund right – possible but seems odd.
    I’m betting on reducing the limits for or eliminating bulk insurance all together. Good news for Genworth and CG and a win for the taxpayer. Bad news for the monolines as a reliable source of funds from the banks will dry up pretty quick driving fixed rates up.
    We’ll see soon! Thanks for the great discussion everyone.

  6. OK let me be radical here:
    CMHC 1: will require 30% down hard cash
    Will not insure Mortgage Over 500K but will not cap it either: so for 1 mil house you must put 500K down, ( 50%). all starting at 30% so
    no risk with people without money and those who have will pay because they have money.
    this is perfect because of tsunami of baby-boomers reals-estate dump that is coming any minute now. ( next 6 years 7 mil pensioners attacking few of us working)
    CMHC 2: 30 % of CMHC stake will be privatized! next year another 10% but not over 49%… ( hey don’t blame me IMF recommended that)
    CHMC 3: Karen Sintz will be arrested and brought to justice for Crimes against people who ride subway ( what? )
    I drink tuborg from can and Rickard red from Draft.

  7. CHMC is not doing anything to take on more business.. the government wants them to inch towards privatization
    In this light, moving DP from 5-10% is in CHMC favour.. moving the 20% up and increasing insurer exposure is counter-productive in this sense

  8. My two cents: I think it will involve CMHC raising their premiums. It could (albeit slightly) dampen the housing market, it would allow Genworth and CG to raise their premiums (without losing business), and it would allow them to offset the risk fees that are now being charged.

  9. If they increase the minimum DP you’re going to see a flood of people swarming to Rent to Owns (most of which only require 2-3% “deposit”); either that, or the bottom falls out of the real estate and mortgage industries because of the number of prospective buyers who will be taken off the table…

  10. Our current federal government is moronic. Why fix / mess with something that isn’t broken ? Why tip the housing industry on its side just to play ideological tricks ?

  11. Maybe establishing a qualifying interest rate for fixed rate mortgages with terms of 5 years or longer. You’d all better hope I don’t win – I can’t/don’t consume alcohol and my round will be watershots – straight from the tap.

  12. What a mastermind idea that would be. Wouldn’t surprise me though. F and his DOF soldiers are executing operation “Shut out first time buyers.”

  13. Sean: thanks for your “vote” of confidence. However, I have to disagree with you that they’d go from requiring those with less than 20% down to less than 35% down require mortgage default insurance seems a bit far. I think they’d go more gradual, like to 25% (from 20%) or, at most, 30%.
    JSydney and everyone else: what do YOU think would have a greater (negative) impact on the Canadian housing and mortgage markets, increasing the minimum downpayment from 5% to, let’s say, 7.5% or 10% OR increasing the threshold whereby mortgage default insurance is required from 20% to 25-, 30- or 35%? And secondly, which one would do a better job at potentially achieving the government’s stated aim to reduce consumer and homeowner indebtedness and hiking mortgage rates?
    Rob’s (and others’) thoughts on changes to securitization rules seem equally likely possibilities. I was going to suggest that, but I don’t think that would be considered a “major” enough announcement to make relatively minor changes to “bulk portfolio insurance”. Do you think it’s likely they could stop “bulk portfolio insurance” altogether and, to free up CMHC’s insurance “cap”, could they mandate ALL institutions remove ALL their “bulk portfolio insured” mortgages out of CMHC or would they legally only be allowed to make this change going forward?
    The Globe and Mail is speculating (no sources quoted, not even anonymous ones, so their guess is as good as ours, I’d think) CMHC is going to standardize and raise the CMHC premium to 3.75% (I guess it’s currently in a range that caps out at 2.75%?). I’m not sure that qualifies as a “major” announcement, either.
    It seems likely, from what I’ve read, it won’t be raising the percentage down requirement to escape CMHC insurance from 20% to 30% as it would be counterproductive and put MORE risk onto the CMHC, not less.
    Perhaps it’s going to be TWO announcements: (1) raising the minimum down payment from 5% to 7.5%-10% and (2) getting out of “bulk portfolio insurance” altogether on a go forward basis? That would seemingly require banks to hold MORE capital, wouldn’t they?
    Anyone know how securitization actually works? Do the banks have to agree to buy back mortgages they securitize that go into arrears or no? If not, perhaps it could be a requirement like that (which WOULD require them to hold more capital, I think) and that might have the effect of basically killing the securitization market in Canada (which, I think, might actually be a GOOD thing). Effectively, with a rule change like that, they could essentially kill the Canada Mortgage Bond program without actually killing it, since no one would want to use it. Go back to the “old fashioned” lending method of actually holding mortgages and loans on a bank’s books and equivalent amount of deposits and other capital on their books to properly balance that out. :)

  14. My guess is increase to CMHC Premium. and Increase from 20% down to 25% down to avoid CMHC Fees. A roll back. this is a practice already with many lenders that the client pays the Insurance Premium on loans 75% and above.Just my two pennies worth.

  15. “The first step towards privatization is setting premiums at a private industry rate appropriate to the risk”
    Last time I checked, Genworth and Canada Guaranty were private and their premiums are the same as CMHC’s.

  16. This is the most sense I’ve seen. Removing 5% down does nothing but punish FTHB. Instead of allowing second or third home buyers access to 5% down make it for FTHB only. I see risk premiums increasing as all insurers have hit a maximum profitability really.
    I can’t see 5% going away whole sale or the limit at a million dropping (much, anyways). There are real buyers who are FTHB that have markets where some first homes are 1MM (Vancouver/Toronto).

  17. >> Last time I checked, Genworth and Canada Guaranty were private
    They are 10% private, 90% government guaranteed.
    The fact that there is no real private option makes it obvious the rates are far too low.

  18. Check youself LS. Genworth and Canada Guaranty are 100% private. If the #%!@ hits the fan they will burn through 100% private capital first, unlike CMHC. Don’t confuse the guarantee with their private capital base.

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