CMHC to rein in mortgage liabilities to $545B this year

Canada's national housing agency expects to trim the amount of insured mortgages it's keeping on its books this year, a continuation of a multiyear trend that started in 2011.

Total amount of mortgages that taxpayers are on the hook for is decreasing

Canada's national housing agency expects to trim the amount of insured mortgages it's keeping on its books this year, a continuation of a multiyear trend that started in 2011.

The Canada Mortgage and Housing Corporation (CMHC) said in its annual report released Monday it expects to have a total of $545 billion worth of insurance in force by the end of 2014. That's down from $557 billion for fiscal 2013, itself a reduction of 1.6 per cent from the $566 billion it had in 2012.

The lower figure could be an indication of many factors, including that the number of people paying off their mortgages is outpacing the amount the CMHC is backstopping in new policies. Regardless of the reason, the overall effect is that taxpayers are on the hook for less of Canada's housing stock.

The CMHC backstops the vast majority of Canada's housing market by offering insurance against default for any homeowner who can't come up with a downpayment of at least 20 per cent. Although the CMHC competes with some private-sector insurers for that business, it's by far the biggest industry player, meaning any changes there have larger impact in the broader market.

The agency's insurance-in-force figure is a high-level look at the total amount of mortgage debt that the agency is theoretically on the hook for, if the borrowers default. By law, that figure is capped at $600 billion, a figure the agency was getting close to a few years ago, which prompted concerns that taxpayers were too much on the hook for an overheated housing market.

Fewer defaults

Since then, policymakers have taken a number of steps to let off a little steam from the market, and the CMHC's numbers released Monday appear to show they've had the desired effect. Last month, the housing agency said it's getting out of the second-home business, and put new requirements in place for self-employed borrowers. 

Those moves come on the heels of several others in recent years, all designed to raise the standards required to get a CMHC-insured mortgage, which indirectly makes it harder to buy a house.

Although the $557 billion insurance-in-force figure is still an eye-popping number, the value of mortgages where the CMHC has had to pay out a claim has also been decreasing over the years. The agency paid out $436 million in claims in 2013, a reduction of 18 per cent from $532 million in 2012 and $617 million in 2011. That figure peaked in 2010 at $678 million.

Even before the extreme option of default, the agency also reported Monday that fewer people are falling behind on their mortgage payments as the arrears rate declined to 0.34 per cent, a 0.01 percentage point decrease from the previous year's level. (The arrears rate consists of borrowers who are more than three months behind on their mortgage payments.)

The agency reported that 10,033 Canadians were delinquent on their mortgages as of the end of December, a reduction of almost 700 people from the same period a year earlier.

The CMHC also posted a profit of $1.8 billion for the year — almost double the amount it earned in 2009. Over the last decade, the housing agency has cranked out more than $18 billion in profit. And under its mandate, all of that money gets returned to government coffers.

The CMHC also impacts the housing market in more indirect ways, and one of them is by guaranteeing the debt that banks issue to finance new home loans.

The CMHC insures a type of mortgage-backed security known as a Canada Mortgage Bond, and the agency said Monday it expects to backstop $120 billion worth of them by the end of this year. That's a reduction of a little over two per cent from the $122.6 billion it insured in 2013 — another sign the housing agency is further extricating itself in tiny increments from its dominant perch atop Canada's housing market.


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