Canada’s mortgage rulemakers want less exposure to insured mortgages and—as this BMO Capital Markets graph shows—they’re getting exactly what they want.

 

Uninsured mortgages have been growing at two and a half times the pace of insured mortgages since the financial crisis.

But high-equity mortgages aren’t growing in that same way at CMHC. A quick check of its financials pegs the average loan-to-value of its insured mortgage portfolio at 52.5%. Five years ago, it stood at 55%.

But in that same timeframe, home prices surged 36%, as measured by CREA’s Home Price Index. By that measure alone, one would expect the loan-to-value of CMHC’s portfolio to have dropped more than 2.5 percentage points. But it didn’t.

One reason is because CMHC isn’t insuring as many low-ratios mortgages these days. Its bulk insurance in force has plunged almost $60 billion since 2011. Conversely, 96.5% of the homeowner insurance it sold in its last reported quarter was high ratio.

Thanks to insurance restrictions and premium hikes, CMHC’s portfolio will grow even more top-heavy with high-ratio mortgages in 2017. No longer will it benefit from the diversification of low-ratio mortgages in its revenue stream and portfolio, not to the same extent it once did. That has to worry someone out there.

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Sidebar: Speaking of worries, we asked CMHC if it was “concerned” that its dramatic hikes in low-ratio premiums could hurt mortgage competition (since so many smaller lenders rely on low-ratio insurance for securitization and funding). A spokesperson replied, “…We are committed to continuing to offer competitive products to a wide variety of lenders”—to which we replied, that didn’t really answer the question. The spokesperson responded, “we have no further comment…” 

Hey, that’s understandable. It can be difficult to comment when your policies just set back competition by over a decade—in a $1.3+ trillion market.