Canada's Condominium Magazine

No new mortgage rules in budget, but CMHC will see more oversight

The federal budget did not impose new restrictions on mortgage loans, but promised that Canada’s main mortgage insurer, Canada Mortgage and Housing Corporation, will be subject to enhanced oversight.

The federal budget presented yesterday did not tighten mortgage lending rules, as many had feared it would, but the housing sector, specifically the Canada Mortgage and Housing Corporation, was in Jim Flaherty’s sights. He did not give details about plans for the CMHC, speaking only of “enhancements to the governance and oversight” of the corporation, and of “legislative amendments” that will ensure its commercial activities promote the stability of the financial system.

The main issue, though, is the increasing number of mortgages that Canada’s banks have been insuring through CMHC. The CMHC has a cap of $600 billion, the maximum value of mortgages it is allowed to insure, but it could reach that cap soon unless something is done.

Under the present law, financial institutions must arrange CMHC mortgage default insurance when a borrower’s down payment on a home is less than 20 per cent. The premiums are usually blended into the mortgage payments. But the banks have increasingly been seeking CMHC insurance even when borrowers have more than 20 per cent down payments. This, said Jim Flaherty recently, is “pushing them (CMHC) near their lending limit,” and is not what CMHC was set up to do.

One change that’s likely to come out of this is that the CMHC will be moved from the portfolio of the minister for Human Resources and Skills Development, where it now resides, to the Office of the Superintendent of Financial Institutions (OSFI), effectively putting it in the finance minister’s bailiwick.

The CEO of Toronto-Dominion Bank said that he was “sympathetic” to the government in wanting to limit CMHC to its present cap of $600 billion. “That’s a pretty big number relative to the size of Canada,” Ed Clark said at TD’s annual meeting in New York yesterday.

Reaction to the budget from the Canadian Home Builders’ Association is mainly positive. CHBA president Ron Olson called it a “practical” budget and believes that Flaherty’s budget supports stability in housing markets. He expressed thanks that the minister did not tighten amortization and down payment rules, as many had called for. “This type of intervention would have prevented thousands of first-time buyers pursuing their dream of homeownership . . . more regulation could threaten every Canadian who owns a home.”

Olson went on to call on the government to improve housing affordability by addressing the issue of the GST new housing rebate and home renovation rebates. These “are the single most important steps that the government could take to protect housing affordability and choice.” At present, in most of Canada, the GST rebate for new home construction reduces the GST and the federal part of the HST to 3.5 per cent on homes under $350,000. Olson says it has not been changed since 1991 and needs to be.

The home building industry creates more than $100 billion in economic activity annually. The CHBA represents the residential construction industry, including new home builders, renovators, developers, trade contractors, building material manufacturers and suppliers, lenders and other professionals in the housing sector.

 

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