Pickering / Ajax Real Estate Blog

Stephen Dupuis – Toronto Star

It’s not my job to defend the Canada Mortgage and Housing Corporation, but when I read articles criticizing CMHC that make quantum statistical leaps while ignoring important facts as well as relevant differences between Canada and the U.S., I feel compelled to write.

Among the many positive roles that CMHC performs as Canada’s national housing agency, it insures mortgages against default by the borrower. Over the years, CMHC has helped millions of first-time homebuyers get over the initial downpayment hump. Virtually every buyer that CMHC has ever insured has eventually progressed into the conventional mortgage market and ultimately reached the goal of being mortgage-free.

Despite the fact that there is no evidence to suggest that Canadians are about to default en masse on their insured mortgages, the critics have been taking random pot shots at CMHC with the most recent attack published in this very paper last Sunday.

The critics tend to look at what has happened in the U.S. housing market, which is rife with foreclosures, as their critical point of departure. They are forgetting or ignoring a couple of very important differences between Canada and the U.S.

Yes, U.S. homeowners got caught by the double whammy of increasing interest rates and decreasing house prices, but they could scarcely afford the homes they had purchased in the first place.

The sad truth is that all parties (lenders, brokers, insurers) in the U.S. system invented ingenious ways to artificially lower the monthly carrying cost of homes while at the same time ignoring the rigours of income verification. That’s a double whammy of a different sort.

When you put both double whammies together, you have a situation where millions of Americans are “under water” in terms of the value of their home relative to their mortgage.

Here in Canada, we did not go down the path of “mortgage innovation,” although we were tempted. Fact is, our own federal government made sure that we would not do so by restricting mortgage financing rules not once, but twice in the last few years. More importantly, our lenders and insurers have continued to insist on full review and verification of every mortgage insurance application against standards set out by CMHC.

The other thing that amazes me about the CMHC critics is the complete lack of evidence of a mortgage default problem in Canada. Mortgages in arrears in Canada are less than one half of one%, according to the Canadian Bankers Association. That’s a miniscule number and outright defaults would be an even smaller subset, which means that CMHC is far from over-exposed.

In my view, the reason there are so few mortgages in arrears in Canada has as much to do with the fact that our lenders and insurers have been cautious, as it does with the fact that our homebuyers tend to think of mortgage burning parties as a good thing, continually striving towards that goal by paying down their mortgages as quickly as possible.

It’s worth noting that 40% of our homeowners nationally don’t even have a mortgage, so we obviously don’t need to worry about them. According to the Canadian Association of Accredited Mortgage Professionals, the average equity of Canadians with mortgages is 53%, so I don’t see much to worry about there either.

I firmly believe that when times get tough, Canadians first priority is to work as hard as possible to protect the heart of the Canadian dream – their homes.

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