Canada

CMHC’s New Management Moves To Protect Market Share Instead of Borrowers

Canada’s state-owned mortgage insurer will be loosening mortgage insurance standards. The Canada Mortgage and Housing Corporation (CMHC) announced they’ll reverse some pandemic measures. They tightened the borrower criteria for insurance at the beginning of the outbreak. Unfortunately, it did little but lost the agency market share. Their competition was more than happy to pick up anyone they rejected. Now the agency is reversing the tightened standards, hoping to recoup business.

CMHC Tightened Credit To Prevent Government-Assisted Exposure To Volatile Markets

The CMHC CEO did something unconventional at the beginning of the pandemic — he looked out for borrowers. Even though their client is the lender, not the borrower, the agency felt a moral obligation. After all, how can a government-owned agency facilitate moral hazard during a pandemic? They wanted borrowers to undergo tougher qualifications. The idea was to make sure only those really prepared for ownership would take the jump at this time.

The criteria became slightly more difficult to get mortgage insurance from the CMHC. Higher credit scores, reduced leverage, and borrowed down payments didn’t count as equity. Nothing over the top. Just prudential underwriting you would have expected from Canada in the 90s.  

Fewer People Didn’t Buy, The CMHC Just Lost Market Share

The CMHC isn’t the only mortgage insurer in town though. Other private mortgage insurers didn’t follow the lead of the CMHC. They saw an opportunity to take their market share. The agency’s issuance of new mortgage insurance was cut in half, less than a year later. They slipped from the largest issuer to watching their peers win their share of the market.

CMHC Reversing Tightening of Mortage Insurance

Siddall’s term is now up, and Romy Bowers is now the CEO of the organization. She must see a lot less risk now that home prices have increased over 20%, because she’s reversing the prudential underwriting. Debt ratios are increased, minimum credit scores are lowered, and quality checks… well, they’ll consider “alternative methods of establishing credit worthiness.”

You may not be able to finance a Civic in Canada, but soon you can buy a home in the world’s most bubbly markets. Complete with the endorsement of the country’s state-owned insurer.

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10 Comments

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  • David 2 months ago

    Did I get it right, now someone can be indebted 44% of gross income? So someone earning 100k in Ontario takes home 72k and out of it can have 44k of debt repayment ? (Total debt including cars) . This is madness

    • Jordan 2 months ago

      That’s wrong. This was always possible through private insurers. It’s kind of the main theme of this whole BD article.

      • GTA Landlord 2 months ago

        Pretty much what I got. The CMHC tried to make a point. That point didn’t matter, since people don’t choose their mortgage insurer. The bank does.

        Good on Siddall for trying to make an ethical decision, but it’s hard for one person to make a difference if the rest of your government doesn’t care.

  • Allison S. 2 months ago

    Hey guys. We’re loosening the standards because it was unreasonably hard and we’re not in a bubble whatsoever. No mortgage application fraud and economy is great. In fact, economy is even stronger than before pandemic with all the forced shut downs. Nothing to see here so move along.

    – Regards, CMHC

    • Pete 2 months ago

      Warren Buffett hoards CASH (30-40%);
      its a good time to sell RE for top dollars now. One house is good enough.

    • Eric 2 months ago

      Hey CMHC,

      How come the economy with pandemic is better than economy with no pandemic.

      “Nothing to see here so move along.”???
      it is probably nothing you can see.

      The economy is not good, this is the inflation happening after any recession.

  • Jay 2 months ago

    What’s not widely know is that CMHC reinsures the private insurers. Even though CMHC tightened their standards and lost some direct market share they were still insuring their competitors portfolios. Game is rigged. Prices not going to crash any time soon fellas. Gov is backing this market.

  • Ksnn 2 months ago

    The entire world printed tons of money, it will take years to work through and prices to readjust. Now, smart money went for assets that track inflation. Can we really blame them?

  • Pete 2 months ago

    Regardless …

    ITS time to sell !

    Warren Buffett still hesitant about real estates and moderate on stocks …. as well as Berkshire hoards cash …
    Not into slavery!
    Buy it low , sell it high

  • Erik 2 months ago

    Government should be providing first time homebuyers with 100k purchasing credits. This will help stave off a market correction.

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