CMHC Mortgage Insurance

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OTTAWA–Canada’s government-backed mortgage insurer said it will cap the amount of mortgage-backed securities it is willing to guarantee, in the latest move by officials here to temper Canada’s housing sector.

In a directive to lenders issued last week, Canada Mortgage and Housing Corp. said that, “effective immediately,” it will guarantee only 350 million Canadian dollars ($336.9 million) of such securities issued by each lender in the month of August.

The move could lead to higher borrowing costs for home buyers, as lenders have used proceeds from government-guaranteed mortgage-backed securities to raise cash at attractive rates in an effort to offer cheaper home loans. It also comes amid ongoing fears that Canada faces the risk of a significant housing correction.

CMHC–which is owned by the Canadian government and is the country’s dominant mortgage-insurance provider–said the federal Finance Department had granted it the authority to guarantee a maximum of C$85 billion in new mortgage-backed securities in 2013. As of July 31, total market issuance of mortgage-backed securities had reached C$66 billion, it said, and this “unexpected increase in issuance volumes” prompted a new policy on guarantees, CMHC said.

The agency said it will implement a new system for allocating guarantees in September, with details to follow later this month. A spokesman for CMHC declined to provide any additional details.

A spokesperson for Canadian Finance Minister Jim Flaherty wasn’t immediately available for comment.

Under the CMHC program, the mortgage insurer guarantees timely payment on mortgage-backed securities issued by banks and other lenders in the event the lender defaults on payments to investors. The goal of the program, first launched in 1985, is to ensure a steady flow of financing to help lower borrowing costs and encourage residential construction.

New laws introduced in the 2012 Canadian budget put CMHC under the watch of Canada’s bank regulator, the Office of Superintendent of Financial Institutions, and gave Mr. Flaherty more power over the day-to-day operations of the agency. A search for a new chief executive at CMHC is underway after long-time CEO Karen Kinsley left in mid-June.

CMHC’s board is now headed by Robert Kelly, the former chief executive of Bank of New York Mellon Corp.

Over a year ago, Mr. Flaherty introduced tougher mortgage-lending rules, including limiting mortgage amortization to 25 years, marking the fourth time in as many years that his government had moved to tighten mortgage lending.

Those rules were a factor in cooling down housing activity in the latter part of 2012 and for most of the first half of 2013–although real-estate activity has gathered steam in recent months in the key markets of Toronto and Vancouver.

Mr. Flaherty told a Canadian parliamentary committee in May that Canada would have suffered a housing bubble had the new mortgage rules not been introduced.



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We incorporated The Mortgage Centre-Sky Financial Corp. in August 1992 in Edmonton Alberta. Furthermore we opened offices in Fort McMurray, Cold Lake, Grande Prairie, Red Deer, Stettler, Saskatoon, Moose Jaw and Prince George BC.

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