Kiyoko Fujimura

Buzzbuzzhome Corp.
May 31, 2010

Canada has been a beacon of hope throughout the global recession. But is our stability based on fundamental economic factors or is there the chance that we have been sweeping our problems under the carpet?

The Canadian Mortgage Housing Corporation (CMHC) is a crown corporation which insures mortgages for chartered banks. During the real estate boom over the past year, the CMHC has increased its liabilities substantially. This means that ultimately Canadian taxpayers are the insurers of Canadian’s mortgages.

CMHC had $9.3 billion in equity at the end of 2009. There is also a very paltry $1.3 billion for loan loss reserves. So there is approximately $10.6 billion available before CMHC runs out of money. After that? Well, CHMC obligations are direct obligations of the Government of Canada. We taxpayers are on the hook for the rest. The Toronto Star

Sure, that sounds scary on the face of it. But what does that really mean? You remember how the US crashed because of toxic assets that were handed out all throughout the economy? From your grandmother’s RRSP to the most savvy hedge funds, mortgage liabilities were a part of every portfolio. When they fell apart, what happened? Everyone panicked and sold, and the government had to buy the assets to stabilize the economy once again.

Basically, the CMHC allows Canada to skip to that last step: where Canada buys back the bad debt. If there is bad debt, which we can’t be sure of, it’s already in the hands of a crown corporation that won’t panic and start selling it off for nearly nothing. CMHC will be forced to eat the loss to ensure stability in the economy.

Frankly, I think the CMHC is yet another example of Canada’s fiscal prudence. The author of this article sounds like yet another fear-mongering, bubble fanatic. And that’s not cool. Not cool at all.

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