TORONTO - The federal government should limit taxpayer exposure to potential problems in the housing market by reducing the role of Canada Mortgage and Housing Corp. in providing mortgage insurance, CD Howe Institute, said a report on Monday.
The CMHC has a dominant presence in the national mortgage market, potentially resulting in "large unmanageable risks in financial markets" that are ultimately borne by the Canadian public, the report said.
Under current rules, people who borrow more than 80% of the value of the house you want to buy should also take out insurance, and CMHC is by far the most dominant player in that market.
According to the report by Finn Poschmann, research vice president at the CD Howe Institute, CMHC mortgage caps now equivalent to over 30% of Canada's gross domestic product.
That is the Canadian left exposed to "high risk, poorly defined," said the document, which argues that Ottawa should turn again the presence of CMHC mortgage insurance and allow more room for private sector insurers.
Originally conceived as a vehicle for implementing public policies, CHMC insurance levels have increased dramatically, especially following the financial crisis as the government encouraged banks to increase loans by allowing them to securitize more home loans.
Critics worry that the unintended consequence of government policy was that mortgages became too easy to get, pushing up real estate prices in much of the country to unsustainable levels.
"Beyond the supposed benefits of promoting home ownership, [the activities of the CMHC] have had some adverse consequences clearly and well understood, as well as the harmful consequences of some less known, but also in global financial markets" said Poschmann.
CD Howe's recommendation comes after repeated warnings from the Bank of Canada that Canadians have become more leveraged and need to start paying the debt.
One of the main concerns about the CMHC is the lack of disclosure about the quality of their mortgage and the details of the types of loans it insures. For example, when the government announced earlier this month that equity lines of credit, or HELOC, no longer qualify for CMHC insurance, many analysts expressed surprise that these loans were never allowed to become part of the program CMHC, in the first place.
Canada is not alone in its policy of promoting home ownership in the United States and many other countries have taken similar initiatives. However, Canada is one of the few Western countries that have not yet been hit with a sharp fall in property prices following the financial crisis.
The report also makes the case for strengthened supervision of CMHC as now the relationship with the Office of the Superintendent of Financial Institutions is primarily a comity agreement in which the Crown corporation is not required to follow the guidelines OSFI.
The CMHC has a dominant presence in the national mortgage market, potentially resulting in "large unmanageable risks in financial markets" that are ultimately borne by the Canadian public, the report said.
Under current rules, people who borrow more than 80% of the value of the house you want to buy should also take out insurance, and CMHC is by far the most dominant player in that market.
According to the report by Finn Poschmann, research vice president at the CD Howe Institute, CMHC mortgage caps now equivalent to over 30% of Canada's gross domestic product.
That is the Canadian left exposed to "high risk, poorly defined," said the document, which argues that Ottawa should turn again the presence of CMHC mortgage insurance and allow more room for private sector insurers.
Originally conceived as a vehicle for implementing public policies, CHMC insurance levels have increased dramatically, especially following the financial crisis as the government encouraged banks to increase loans by allowing them to securitize more home loans.
Critics worry that the unintended consequence of government policy was that mortgages became too easy to get, pushing up real estate prices in much of the country to unsustainable levels.
"Beyond the supposed benefits of promoting home ownership, [the activities of the CMHC] have had some adverse consequences clearly and well understood, as well as the harmful consequences of some less known, but also in global financial markets" said Poschmann.
CD Howe's recommendation comes after repeated warnings from the Bank of Canada that Canadians have become more leveraged and need to start paying the debt.
One of the main concerns about the CMHC is the lack of disclosure about the quality of their mortgage and the details of the types of loans it insures. For example, when the government announced earlier this month that equity lines of credit, or HELOC, no longer qualify for CMHC insurance, many analysts expressed surprise that these loans were never allowed to become part of the program CMHC, in the first place.
Canada is not alone in its policy of promoting home ownership in the United States and many other countries have taken similar initiatives. However, Canada is one of the few Western countries that have not yet been hit with a sharp fall in property prices following the financial crisis.
The report also makes the case for strengthened supervision of CMHC as now the relationship with the Office of the Superintendent of Financial Institutions is primarily a comity agreement in which the Crown corporation is not required to follow the guidelines OSFI.
No comments:
Post a Comment