There’s no doubt that the Canadian housing market is hot. Some industry experts say it’s overheating, but then again, we’ve been hearing that for a while.
In any case, the Feds are on it. Jim Flaherty announced this morning that the Canadian Mortgage and Housing Corporation (CMHC) will now be supervised by the Office of the Superintendent of Financial Institutions (OSFI).
The CMHC provides insurance for mortgages that banks give out. In the event of a US-style crisis, the CMHC would have to pay out a lot of money. And, since the CMHC is a Crown Corporation, essentially it’s taxpayers that would be on the hook.
Part of OSFI’s mandate is to “contribute to public confidence in a safe and sound financial system”. Aww, what a cute arms-length government institution. They just want us to be safe and sound.
So with that in mind, it sounds like OSFI’s the right man for the job!
According to the Globe and Mail, currently the CMHC is primarily overseen by Human Resources Minister Diane Finley. Doesn’t really seem like a match made in heaven, so the switch seems to make sense.
The CMHC is expected to have over $500 billion on its books in insured mortgages by the end of the year. That’s a pretty big chunk of change. Just for a bit of context, by August 2008 9.2% of all US mortgages outstanding were either delinquent or in foreclosure. I’m by no means saying that there is a risk of that situation replicating itself in Canada.
The sub-prime mortgage product is a very different beast than anything offered in up here. However, if all 9.2% of those mortgages went into default in Canada, that would mean Canadian taxpayers would have over $45 billion in uncollectable mortgages to answer for.
It also broadens the scope of the CMHC’s responsibilities. They will now ensure that their commercial activities support the stability of the financial system as a whole (a.k.a. keep an eye on the market and if it’s inflating, do something about it).
So, while somewhat dry, it’s a story with a happy ending.
TWO TALKING POINTS FROM THIS STORY:
- The CMHC is now under the umbrella of OSFI.
- The CMHC is not just a publicly-owned insurance company. It’s now responsible for monitoring the market and promoting stability.