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Canada Mortgage and Housing Corporation ( CMHC ) is a Crown corporation owned by the Government of Canada. The Corporation was founded after World War II to provide housing for returning soldiers. It later built and/or funded urban renewal projects in Canada's cities. The CMHC is similar to Freddie Mac and Fannie Mae in the United States.
Today, its main function is providing mortgage insurance of residential mortgage loans to Canadian home buyers. This insurance protects mortgage lenders against mortgage defaults on mortgages of less than 20% down.
Since 1954, one in three Canadian home buyers have made use of the insurance. Besides mortgage insurance, the agency provides financing to housing projects and renovations, does housing market analysis and funds research into housing design and technologies along with the National Research Council of Canada.
The Corporation reports to the Minister of Labour and Housing and the board of directors and president are appointed by the federal government.
History
Near the end of World War II, the Canadian government began to worry about the demobilization of thousands of soldiers in Europe, and their re-entrance to Canadian society.
With so many people coming back to Canada, a number of problems would arise, one being that there may not be enough housing existing to accommodate the soldiers and their desire to have families.
The agency was created in 1946 in response to housing demands after the return of World War II veterans and societal changes after the war included a policy that every family in Canada have their own home.
CMHC's role was to aid in the management and finance of housing projects in Canadian cities. It took over the assets of the Wartime Housing Ltd., that had built thousands of houses during the war. Upon creation, the Corporation was named the Central Mortgage and Housing Corporation.
In the 1950s and 1960s, CMHC was the agency that approved urban renewal projects for federal funding and managed the housing funds for that purpose. Examples included Regent Park in Toronto.
In 1954, the federal government changed the National Housing Act. The amendment removed the federal government from the direct finance of private housing projects, instead leaving mortgage financing to the banks. The banks began to issue mortgage loans with CMHC underwriting. If the individual receiving the loan went bankrupt then the bank who gave the loan would not lose money, but instead would be reimbursed by the government. As part of the CMHC lending and insurance mechanisms low-risk borrowers would have to pay insurance premiums if they wanted to borrow with small down-payments.
In 1979, the Corporation's name was changed from the Central Mortgage and Housing Corporation to Canada Mortgage and Housing Corporation.
In the 1980s, the federal government withdrew from the financing of public housing projects. CMHC no longer directed funds to municipalities for the building of housing projects. Some government housing funds and mortgage guarantees since then have been provided for individual projects.
Importance in Canadian public sector
Public sector importance
- The CMHC is the second largest Crown Corporation after Canada Post in terms of revenue with some $4.6 billion in 2004.
- CMHC is the largest Crown Corporation in terms of assets with some $26 billion in holdings as of 2008-2009.
The CMHC has influenced the development of Canadian housing projects since its post WWII inception.
Furthermore, the federal Government of Canada often uses the CMHC as a financial agent.
Influence over housing projects
The CMHC provides assistance and guidance to the private sector in the building, design and planning of houses. Thus provincial governments have aligned their housing standards and planning practices along those of the CMHC.
The CMHC also makes financial loans to cities at lower interest rates for the development of housing projects.
Thus, both the cities and provinces in Canada rely on the CMHC for the continuation of housing development in the areas under their jurisdiction.
This alignment has had a number of influences on Canadian housing in general:
- Development of the policy of every Canadian family having a home.
- Development of a national building code
- With the insurance of mortgages and 90%/10% downpayment standard the suburbanization of Canadian cities was possible
- Building experimental houses for new and improved building techniques and technology
- Often acts as a developer, but this function is diminishing.
- Influences the socio-economic differentiation in cities by approving low-cost housing projects only when placed where they desire.
Examples of CMHC participation
For example, the Calgary municipal government wanted to develop the NE portion of the city as a high-cost housing market due to the view of the Rocky Mountains. However, the CMHC, in loaning money to Calgary, decided that the development should instead be focused around low-cost housing projects.
Recent developments
In 2001 GE Capital was permitted to join CMHC in the Canadian mortgage insurance industry to provide competition in the marketplace.
GE Capital began insuring Canadian mortgages and issuing NHA-MBS (Mortgage Backed securities insured by the Government of Canada).
In 2002 total outstanding mortgage debt in Canada was $467 billion. These mortgages were on the whole issued to households with good credit, and to people with proper downpayments. CMHC insured a small portion of this debt.
In 2003 CMHC decided to remove the price ceilings limitations. That is, it would insure any mortgage regardless of the cost of the home.
In 2007, after years of lobbying, the now defunct AIG found new hope with the newly elected Conservative government.
- AIG was now permitted to insure high risk Canadian mortgages.
- CMHC was also permitted to issue mortgage backed securities and exchange these on the open market.
- At the same time, the Conservative government launched a radical policy that allowed CMHC, AIG & GE to insure 35 year amortizations that were coupled with 0% down payments. A few months, but before 2008 -- this was expanded to 40 year amortizations.
Thanks to Canada economic stimulus package of 2007 the mortgage market radically changed. Historically high home prices continued to gain steam. High risk borrowers flooded the real estate market.
Throughout 2007, the average Canadian home buyer who took out a mortgage had only 6% equity in their home. The 6% equity is or equals the national average downpayment for all mortgages including home buyers who traded up to more expensive homes.
In 2008, Canadian home prices started to dip as affordability became the worst on record in many cities.
- CMHC publicly admitted that it was ordered to approve as many high risk borrowers as possible to prop up the housing market and keep credit flowing.
- In 2008 some 42% of all high risk applications were approved, a 33% increase over 2007.
Between the beginning of 2007 and 2009 Canadian Banks increased their total mortgage credit outstanding listed on their books by only 0.01% -- possibly the smallest amount of change in post WWII history.
Mortgage Securitization has accounted for 90.5% of all growth in total Canadian mortgage credit outstanding since 2007.
The Canadian mortgage securitizaton market has grown from
- 100 billion in 2006
- 130 billion in 2007
- to 295 billion by mid-June 2009
CHMC plans to expand securitization of debt to 370 billion by the end of 2009 as per the Government of Canada request.
Current issues
All Canadian mortgage securities are traded on an open exchange and insured by the Government of Canada.
Currently the securities outstanding are as of 2008-2009 roughly
- TD Group : 59 billion
- CIBC : 51 billion
- BNS : 32 billion
- RBC : 45 billion
- BMO : 27 billion
Many individuals in 2009 are being granted 500K CAD - 800K CAD mortgages for their first home purchase if their household income ranges from 110K CAD - 170K CAD. Statistically speaking such grants are problematic during a global recession.
CMHC indicates in its plan that it will insure $813 billion via a combination of mortgage insurance and mortgage-backed securities (MBS) by the end of 2009.
According to CHMC figures from 2008 and 2007 it is clear that CMHC has drastically exceeded their planned figures. It is expected that 812 billion is more than likely to be a minimum target.
At these rates of progression the Government of Canada will in effect be insuring well over $500 billion in securitized mortgages and lines of credit by the end of 2010. The Canadian Government will also have issued over $600 billion in outstanding mortgage insurance.
Many economist
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