Canada Mortgage and Housing Corp. was established in 1946 to house returning war veterans and lead the nation’s housing program. It’s now a multibillion operation.
In an ongoing effort to strengthen the housing finance system and stabilize the housing market to the benefit of all Canadians, last week the government effectively shut down the low ratio mortgage market by not allowing insured loans into what are covered bond contracts. CMHC can only guarantee covered bonds with the approval of the finance minister.
By law, consumers must buy mortgage default insurance if they have less than a 20% down payment on a home and are borrowing from a federally regulated financial institution.
But CMHC has not been insuring just those loans, it has agreed to step in and insure loans — with the premiums paid by financial institutions — for lower-ratio mortgages, or what is called “portfolio” or “bulk insurance.”
Those are the ones that are creating “cheap money”, low interest rates which the finance minister does not control. Last weeks announcement is an attempt to stop the banks from offering this.
In plain language, the CMHC’s lending authority is now within the domain of the Finance Minister and it is expected that the rules under which the CMHC will underwrite in the future will be tightened.
Bottom line: It’s going to be harder to get a mortgage.
