Canada: Enhanced Oversight of the Mortgage Insurance Industry and Progress on the Legislative Framework for Mortgage Bonds

Date Published 4/4/2012
Author Marja Hoek-Smit
Country Canada

Canada’s housing market and housing finance system have weathered the global crisis better than most. There are, however, signs that some parts of the housing market are overvalued and that there is an oversupply of new housing (see TD Economics Special Report). In speeches last week both the Finance Minister and the Bank of Canada Governor expressed concerns about housing finance risk related to current housing market trends given and the increasingly high consumer mortgage debt levels. Mortgage debt has some of the lowest rates in decades. Policy makers announced that they will further enhance supervision of private mortgage insurers and strengthen the oversight framework for the government-backed Canada Mortgage and Housing Corporation (CMHC).The federal government guarantees the full value of mortgage insurance provided by CMHA (which covered C$541 million at the end of Q3 2011; its legal limit is C$600 million) and 90 percent of insurance offered by private insurers. CMHC reports to the Human Resources and Skills Development Ministry and is not supervised by the country’s bank regulator.  In the budget by the Ministry of Finance stated “The Government will propose legislative amendments to strengthen oversight of CMHC and to ensure its commercial activities are managed in a manner that promotes the stability of the financial system. Earlier adjustments to the rules for government-backed insured mortgages were made in July 2008, February 2010 and January 2011. In June 2011 Parliament approved legislation to formalize arrangements with private mortgage insurers and CMHC, enhancing the Government’s ability to manage risks arising from the mortgage insurance sector. The Government is also moving forward with a legislative framework for covered bonds. CMHC will be the administrator of this covered bond program, which will be available to federally and provincially regulated mortgage lenders in Canada (see government consultation paper from May 2011 –link here). The main issue raised in the consultation paper was whether covered bonds can be secured with non-insured mortgages -which is relevant given that CMHS is soon to reach its mandated insurance limit.

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