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CMHC cutting back on what it covers with mortgage default insurance
Canada Mortgage and Housing Corp., the Crown corporation that controls the vast majority of mortgage default insurance in the country, says it plans to get out of the market for second homes and is adding restrictions for self-employed Canadians.
Effective May 30, CMHC said it will discontinue insuring second homes and will require self-employed Canadians to have third party income income validation.
The Crown corporation said the changes are being made as part of its review of its mortgage loan business. The organization has already said it is raising rates across the board May 1, a move that comes after the federal government last year appointed a new chair for CMHC and brought in a new chief executive.
CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system said Steven Mennill, senior vice-president, insurance, in a release. As part of the review of its mortgage loan insurance business, CMHC is evaluating its products and services to ensure they are aligned with these objectives.
The agency said its the first set of changes resulting from the review of its operation. TheFinancial Postreported this month that Evan Siddall, a former investment banker brought in as CEO, has been asked about the possibility of a risk-based method of assessing mortgage default insurance. Sources say the new CEO has told people he doesnt disagree with the principal of risk-based insurance.
The changes announced Friday affect a small portion of the market. CMHC said its second home and self-employed without third party income validation business account for less than 3% of CMHCs insured business volumes in units.
Given the limited use of these products, their discontinuation is not expected to have a material impact on the housing market, the agency said in a release.
CMHC first introduced the program for self employed people in 2007 in response to industry competition which at its peak saw some U.S. players enter the market and encourage changes that created amortization lengths as long as 40 years. The government has since restricted loans to 25-year amortizations.
The second home product was introduced in 2005 and applied when purchasing an owner-occupied second home anywhere in Canada.
CMHC said it will limit the availability of homeowner mortgage loan insurance to only one property (one to four units) per borrower/co-borrower at any given time.
Benjamin Tal, deputy chief economist with CIBC, said the announcement was not a big surprise given the mandate of providing more stability. That might not be the end of it. We might see more coming from CMHC.
Finn Poschmann, vice-president of research at the C.D. Howe Institute, said the requirement for validation seems reasonable.
What is interesting is the question of whether the change will tend to shift risk away from CMHC and toward the private insurers. Whether that is the outcome will be determined by the private insurers responses, he said, in an email.
Unemployment rate unchanged in October
Following two consecutive months of growth, employment held steady in October. The unemployment rate was unchanged at 5.5%.
On a year-over-year basis, employment grew by 443,000 or 2.4%, driven by gains in full-time work. Over the same period, total hours worked were up 1.3%.
In October, employment increased in British Columbia and Newfoundland and Labrador, and was little changed in the other provinces.
Employment was down for men in the core working ages of 25 to 54, and grew for the population aged 55 and over.
Employment declined in manufacturing and construction. At the same time, employment was up in public administration and in finance, insurance, real estate, rental and leasing.
The number of self-employed workers decreased, while the number of employees in the public sector increased for the second consecutive month.
Canada: Household Credit Growth Continues To Climb in September
CANADIANS BORROWING HAND OVER FIST
Total Canadian household credit growth continued to accelerate in September, reaching a pace last seen in mid-2018. Despite a slight deceleration from the previous month to 4.3% at a seasonally adjusted annualized rate (m/m saar), trend growth remains at elevated levels. Both mortgage and consumer credit growth contributed to the 68 bps slowdown from the prior month (46 bps and 22 bps, respectively), but borrowing conditions remain favourable overall with trend growth still in strongly positive territory.
RESIDENTIAL MORTGAGE CREDIT EXPANSION CONTINUES ITS ASCENT
Residential mortgage credit growth continued on its upward trajectory in September supported by favourable borrowing conditions and strong labour markets. Mortgage loan growth accelerated by 4.9% m/m saar in September, pushing the year-on-year trend growth rate to 4.2% y/ythe fastest pace since mid-2018, marking a well-pronounced recovery in the mortgage-borrowing market.
Canadas real estate market looks to be rebounding following a turbulent couple of years due to various policy announcements from 2017 to 2018 designed to cool the market. Mortgage borrowing has picked up through the second half of 2019 with the uptick in demand following a reduction in the mortgage qualifying rate in July and a decline in 5-year mortgage rates. With the Bank of Canada under pressure to continue to provide a stimulative environment following sustained levels of uncertainty, residential mortgage credit growth is expected to remain supported in the foreseeable-future.
Strength in Canadian labour markets has also been conducive to a favourable borrowing environment. Septembers surge in job gains contributed to a fall in the unemployment rate to 5.5%.