CMHC’s New Portfolio Composition

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.

                                     Source: Sohrab Movahedi, Analyst, BMO Capital Markets


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.

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.

  1. Many thanks Rob for continuing to track down the facts so that evidenced based questions can be asked of the bureaucrats who seem to have no interest in giving fact based answers.

    I hope all mortgage brokers can reach the logical conclusion from your excellent reporting: we MUST re-direct our approach to the politicians themselves directly and effectively. Clearly the bureaucrats have made their decisions and as they are salaried apparatchiks we simply have no leverage there. Politicians need to get elected and if we can get them to to understand these changes will have bad political results once we educate the public about the wrong direction that has been taken, we have a chance to reverse key changes such as bulk insurance on refinance and we can head off “risk sharing” before it becomes another blow to our channel.

  2. I am still trying to figure out how CMHC can justify a 126% increase in premiums on the 75% LTV bucket and 92% increase on the 80% bucket.

    Are they telling us they’ve been dramatically underpricing these premiums despite raising them in 2014 and 2015?

    They are an insurance company that is supposed to accurately price risk. Do they even know what they are doing over there???

    1. “Do they even know what they are doing over there???”

      One of the best arguments as to why governments should not diddle with the free market.

  3. (Likely dumb) question: how does CMHC know when a mortgage is discharged (and insurance coverage invalidated) during a sale or uninsured refinance? Is this documentation processes standardized across lenders? Always wondered how CMHC accurately knows how much insurance they have in force.

    1. Great question Whistler. The answer (from CMHC):

      Timely reporting of insured outstanding loan information to CMHC is part of the Approved Lenders’ responsibility under the National Housing Act. Lenders are required to provide CMHC with information on their insured portfolio on a quarterly basis. A standardized reporting template for all mortgage insurers is used by all lenders, and the quality of this reporting is verified on a regular basis.

      1. Thanks Rob – just saw this answer now. I figured CMHC would have a methodology/process, but didn’t know if lenders’ reporting would be standardized, as is the case.

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