Finance Committee on May 17th, 2006

[Nicholas Le Pan]

Yes, it has, and it's going to continue to evolve. I'm not sure exactly what you're getting at. I will say, however, Mr. Turner, that one of the things we try to do is.... It's normally pretty well known if we're looking at applications for new bank entrants, so quite often we'll find that parties who may have views about that, about the impact, will provide us with information, submissions, and so on, and I expect that's already been happening in this case.

[Garth Turner, Conservative, Halton, ON]

But I was thinking in terms of consumers and homebuyers. How has the marketplace changed there, the relative importance of mortgage insurance in that marketplace? Obviously for you to do an analysis of a business plan you have to know what the premium payments are now, the scope of the market, and the importance of mortgage insurance in the marketplace now.

This leads me to my second question. You said the door has been opened to other applications from other players, but you haven't had any. Why would you surmise that has been the case, and why has it changed now? There must be some change in the marketplace, in your estimation, that has resulted in this application.

[Nicholas Le Pan]

No, I don't accept that. There are a variety of reasons why. We've had parts of the financial services market that have been very stable for a period of a number of years, and then somebody else will come in and say they think they have a better model, they can lever off systems, or approaches, or whatever elsewhere, or the market has changed.

So there can be a variety of reasons. Our view of the business plans is not really, as you said, to sort out.... We're going to do a fairly high-level review of the adequacy of those. We're not going to assure that those plans are successful. We want to try to weed out the plans that are inappropriate, done in an irresponsible kind of way, but we're not going to try to substitute our business judgments--

[Garth Turner, Conservative, Halton, ON]

I understand that, but it goes back to the nature of my first question. Could you tell the members of the committee how the situation has changed in terms of mortgage insurance, in terms of consumers? What has been the evolution over the last few years? It used to be mortgage insurance was somewhat rare. What is the situation now?

[Nicholas Le Pan]

No, I wouldn't say that. Somewhat rare?

[Garth Turner, Conservative, Halton, ON]

A high ratio, an extremely high ratio.

[Nicholas Le Pan]

But that's really what we're talking about, right? We're really talking about the fact that there's been a requirement for a number of years in the various statutes that high-ratio mortgages be insured. The government has then changed the approach to CMHC. That's changed the marketplace. MICC, which was then taken over by--

[Garth Turner, Conservative, Halton, ON]

Okay. I'm running out of time here.

[Nicholas Le Pan]

I'm not sure what you're after here. Sorry.

[Garth Turner, Conservative, Halton, ON]

What I'm trying to get you to give us is the relative importance of mortgage insurance in the marketplace today when we have the highest real estate values in the history of the country. Do we have, yes or no, 50% of the people buying homes in this country now requiring mortgage insurance? That's a big change, right? That's all I'm trying to get to.

[Nicholas Le Pan]

I'm sorry, I--

[Garth Turner, Conservative, Halton, ON]

Which sets the scene then for having other people who naturally want to get into a marketplace that is now big and fat. What are they going to be offering in there? You're reviewing a business plan from an applicant. Without naming the applicant or telling us what's in the business plan, what's in it for consumers?

[Nicholas Le Pan]

I think the key thing that private sector providers of mortgage insurance have brought has been competition for CMHC. Some of that competition has been on service. Some of that competition has been on rates. I'm not going to comment much more because I will then start to stray into an individual business plan and half the people around this room will know who we're talking about. I think there has been benefit over the past...my experience with the existing competition that was promoted through the offering of the guarantee originally has been really beneficial in terms of service and rates of service.

[Garth Turner, Conservative, Halton, ON]

Okay.

Here's my other question. Have you looked at the American experience? And without casting any aspersions on whether the competition is good or bad--and generally it's excellent--I think we all agree that having competition in the marketplace is a good thing we should probably encourage wherever we can.

Some people who are against competition, however, hold up the example of the American marketplace where a lot of people go into the insurance business and all of a sudden they're giving what some people would call kickbacks to the financial institutions when they're paying back parts of their fees in order to get the business, which they then insure. Is there any concern about that? Because after all, these are consumers'--taxpayers'--dollars that are ending up in the pockets of other financial institutions.

[Nicholas Le Pan]

I think the key point from my perspective, Mr. Chairman, is that certainly we have not received a groundswell of complaints about inappropriate market conduct.

[Garth Turner, Conservative, Halton, ON]

But I'm talking about the future, going forward, how we can open it up more, not about what exists today.

[Nicholas Le Pan]

I understand that, though we've had competition and new private players in the market over the past few years.

I think that policy makers--not regulators--would have to make the judgment here. Is there an existing problem, or the likelihood of a problem arising for which we need a new set of market conduct rules? Because there are none. We don't administer them, and they are not fundamental. At this point we haven't seen a huge amount of evidence that there is a systemic market conduct problem.

Focusing on going forward, there are a number of aspects in the U.S. market that are different from ours, and so on. We haven't studied that, and we won't when we look at individual applicants. We'll look at the marketplace as it is, and we'll look at the likelihood of an applicant being reasonably successful and being safe and sound. Our market analysis won't look at whether there is a need for policy changes for market conduct rules. That's a broader question. You already started that discussion, I gather, a few days ago with officials from the Department of Finance. From what we know, we have not seen a groundswell of that kind of issue coming to us.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Turner.

Seeing no other questions, I will thank you on behalf of the committee for your responses today and your presentation earlier. I very much appreciate your being here.

[Nicholas Le Pan]

Thank you.

[The Chair, Conservative, Brian Pallister]

The committee will remain for a moment; I have notice of a motion.

[The Chair, Conservative, Brian Pallister]

Okay, ladies and gentlemen, we'll continue.

We have one item of business to deal with, and then we'll let all of you who aren't on the steering committee go.

Yes, Mr. Pacetti?

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

A point of order, Mr. Chairman.

I have a problem here because it's not on the....

agenda. When a motion does not appear on the agenda, I have a problem with that.

I think we should follow procedure. That's my opinion. If you could take it into consideration, maybe you'd want to speak to the other members.

[The Chair, Conservative, Brian Pallister]

It's not on the agenda, that's true. But notice was received, I assure you, and I'm giving the member the opportunity she deserves to present her motion.

Proceed.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Again, Mr. Chair, I don't hear the member. I think it's an issue put on by the chair. If the chair is going to bring up the motion, then he should at least put it on the agenda.

[The Chair, Conservative, Brian Pallister]

I'm simply telling you that I received affirmation prior to the meeting from the member of our committee that she wished to make the motion. So I'm allowing her to do so because she did give appropriate notice.

Over to you, Madame Wasylycia-Leis.