Tougher stress-test­ing hits CMHC home in­surance

The Globe and Mail (Atlantic Edition) - - REPORT ON BUSINESS - JANET McFARLAND

To­tal vol­ume de­clines 44% year over year in third quar­ter fol­low­ing new rules mak­ing it harder for buy­ers to qual­ify for mort­gages

Canada Mort­gage and Hous­ing Corp. saw its mort­gage in­surance business con­tinue to shrink in re­cent months as a re­sult of tougher new qual­i­fi­ca­tion rules and de­clin­ing home sales in the Toronto area.

CMHC, which in­sures mort­gages for buy­ers who do not have down pay­ments of at least 20 per cent, re­ported on Wed­nes­day that its to­tal in­surance vol­umes slid to $12.5-bil­lion in the third quar­ter of 2017, a de­cline of 44 per cent from $22.5-bil­lion in the same pe­riod last year.

Home­owner in­surance fell to $8.89-bil­lion in the third quar­ter from $12-bil­lion a year ear­lier, while the vol­ume of port­fo­lio in­surance fell dra­mat­i­cally to $987-mil­lion in the quar­ter com­pared with $8.4bil­lion a year ear­lier. Port­fo­lio in­surance is pur­chased by fi­nan­cial in­sti­tu­tions to pro­tect their port­fo­lios of unin­sured mort­gages.

Most of the de­cline in vol­umes was be­cause of tougher stress-test­ing rules in­tro­duced last year for in­sured mort­gages, which made it harder for buy­ers to qual­ify for mort­gages when they did not have a 20-per-cent down pay­ment. The rules also in­tro­duced strict lim­its on the types of mort­gages el­i­gi­ble for port­fo­lio in­surance.

Steven Men­nill, CMHC’s senior vice-pres­i­dent of in­surance, said the cor­po­ra­tion has also seen in­surance vol­umes de­cline be­cause of a sales down­turn in the Toronto area since April. In Oc­to­ber, for ex­am­ple, the Toronto Real Estate Board re­ported the num­ber of homes sold was down al­most 27 per cent com­pared with the same month last year af­ter fall­ing 35 per cent in Septem­ber on a year-over-year ba­sis.

“We have seen a de­crease in our mort­gage in­surance vol­umes in places like the Greater Toronto Area in the last few months,” Mr. Men­nill said on Wed­nes­day.

CMHC does not break out its business vol­umes by re­gion, but said On­tario ac­counted for 33.6 per cent of na­tional home buyer loans in­sured in the third quar­ter this year, down from 36.4 per cent in the same quar­ter last year.

Mr. Men­nill said the sharp drop in CMHC’s in­surance vol­umes ap­pears to be a per­ma­nent shift in the business, and staff lev­els in the home­owner in­surance group have been re­duced as a re­sult. How­ever, he said more jobs will shift into the mul­tiu­nit res­i­den­tial group, which pro­vides mort­gage in­surance for the apart­ment-build­ing sec­tor. That divi­sion saw to­tal in­surance vol­umes grow to $2.7-bil­lion in the third quar­ter from $2.1-bil­lion last year.

CMHC is also re­spon­si­ble for ad­min­is­ter­ing fund­ing for the fed­eral gov­ern­ment’s so­cial hous­ing pro­grams, which have ex­panded rapidly as a re­sult of new fund­ing com­mit­ments to re­duce home­less­ness and help low-in­come earn­ers. Staff lev­els will in­crease in those ar­eas, so to­tal CMHC staff lev­els will not shrink and may grow over time, CMHC chief fi­nan­cial of­fi­cer Wojo Zielonka said.

CMHC ap­proved an ad­di­tional $290-mil­lion div­i­dend in the third quar­ter, which will be paid to the fed­eral gov­ern­ment, bring­ing to­tal div­i­dends ap­proved this year to $4.7-bil­lion.

CMHC only be­gan pay­ing div­i­dends to the fed­eral gov­ern­ment this year, and the 2017 to­tal in­cludes a $4-bil­lion spe­cial div­i­dend de­clared in June to re­turn ex­cess cap­i­tal to the gov­ern­ment.

While crit­ics have ar­gued that CMHC should lower pre­mi­ums for home buy­ers in­stead of pay­ing big­ger div­i­dends to the gov­ern­ment, Mr. Zielonka said the div­i­dends come from past profit and ex­cess ac­cu­mu­lated cap­i­tal, while pre­mi­ums charged to­day for new poli­cies are ap­pro­pri­ate for the level of an­tic­i­pated un­der­writ­ing risk they rep­re­sent.

He said CMHC does not want to cut pre­mi­ums and sub­si­dize fu­ture risks with past profit.


A down­turn in Toronto’s res­i­den­tial real estate mar­ket also con­trib­uted to the drop in CMHC’s in­surance vol­umes.

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