Finance Committee on June 1st, 2006

[The Chair, Conservative, Brian Pallister]

I have heard considerable counsel. I wonder if we could proceed to the vote at this point.

Mr. Pacetti.

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

Mr. Chairman, I just want to put this on record because of the complexity of this amended clause, which I would have preferred to have done piecemeal.

If we continue, at the bottom of page 2, we go on to amend the personal amounts in respect to a spouse or common law partner. Again, we're ending up in the same place at the end of 2009, for $8,500.

If we look at what I'm proposing, you'll seein the middle of page 9, it's $8,500. Again, it's for taxation in 2009. This clause just brings back the basic personal amount and the personal amount in respect of a spouse or a common law partner, which is the same as what the Conservatives are proposing; it's just at a different rate. It's to avoid the increase in tax rates again.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Pacetti.

Does the committee wish to move to the vote?

[John McCallum, Liberal, Markham—Unionville, ON]

I have one last question.

[The Chair, Conservative, Brian Pallister]

Well, Mr. Del Mastro is ahead of you then, and we're going to proceed with discussion. Either we're moving to a vote or we're going to continue the discussion.

Shall we call for the question?

We'll have a recorded vote, then. Please proceed.

(Amendment negatived: nays 6; yeas 5) [See Minutes of Proceedings]

(Clause 60 agreed to on division)

(Clauses 61 to 192 inclusive agreed to on division)

(On clause 193--Mortgage or hypothec insurance protection agreement)

[The Chair, Conservative, Brian Pallister]

We move now to the next amendment, which is from Madam Wasylycia-Leis, I believe, and it is marked NDP-1.

Madam Wasylycia-Leis, please proceed.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you.

Let me make a couple of introductory remarks for both the NDP-1 and NDP-2 amendments. I'm really hoping that my colleagues from all sides around the table will give these amendments serious consideration.

They have to do with mortgage insurance, and they acknowledge that the government has decided to open up mortgage insurance to private competitors. They are an attempt to reflect some of the concerns we heard from individuals who were supportive of the open process but wanted to see some guarantees put in place. They are a serious attempt to put some oversight into the process and to actually establish some clarity around the criteria being used vis-à-vis private mortgage insurance.

So I'm really hoping that there will be some serious debate and consideration of these items. I don't think they detract the government at all from their agenda. I think they're helpful in terms of what people like the home builders and the Real Estate Association, Desjardins, and of course some of the housing coalition folks said on Monday.

I'll describe both amendments, Mr. Chairperson. On the first one, if you turn to page 167 in your book for the bill, and turn to clause 193, we propose to add subclause 193.(1.1), which would simply say that despite subclause 193.(1), the Minister of Finance may not enter into any agreement or selection of a person that does not meet the applicable selection criteria prescribed by regulation.

This basically is recognizing that the government will want to in fact look at criteria under the regulations to ensure some sort of standard of equality is in place. That addresses the concern that folks had about the possibility of some mortgage insurers wanting to play the market and choose areas and deny other areas of need.

So it's just an attempt to try to get some measure of equality introduced into the process so that government can then judge and look at the outcome and make decisions subsequent to that, pursuant to the opening up of mortgage insurance to others besides CMHC and Genworth.

Then you go to the second part of that amendment. It adds on page 168, at clause 194, a fourth category, and it is the selection criteria that persons may or may not use to sell mortgage or hypotech insurance.

So it basically provides for specific standards governing the relationship between insurer and lender as a possibility. It allows for the government to look at the possibility of ratios of high to lower risk clients as part of the criteria, and it simply recognizes that there are some regulations now that can be added to. This amendment makes that possible.

Then I'll go to the last amendment, which is also on page 168, in clause 193. After subclause 193.(5) it adds all of these words--

[The Chair, Conservative, Brian Pallister]

Madam Wasylycia-Leis, are you going to discuss the second amendment now?

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

I threw them all out as a package to start with.

[The Chair, Conservative, Brian Pallister]

Okay. Proceed.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Just so you have an understanding, they are a package because it's an attempt to simply give the government the latitude to be able to oversee this area, to put in place criteria through the existing regulation process that will help measure outcomes and provide some way to ensure equality of access by region and by income strata.

The last amendment reflects a need we heard during the panel discussions for some sort of accountability on the part of the minister and the government to Parliament in terms of the public policy performance of mortgage insurers. It allows for tracking of acceptance and denial of insurance by geographic or demographic area, which will facilitate at least the beginning of an analysis of the delivery of services, and that is really absent at the present time. Hopefully it will improve in quality through the use of more sophisticated tools as we progress and as time goes by.

We can look at other models out there that might be a guide for the government in applying these amendments. I looked specifically at the U.S. Home Mortgage Disclosure Act; that was very useful, because they put in place some very specific amendments to try to protect against discriminatory behaviour on the part of mortgage insurers. It would make it possible for Canada to monitor mortgage delivery and the role of mortgage insurance so that we could modify and fine-tune our own system to better serve Canadians. As many know, the American reporting requirements are much more stringent than those in Canada.

In conclusion, through this whole process, if the government and the applicants who are going to apply for a part of this mortgage insurance piece are truly committed to competition, which I accept—and as I said yesterday, I'm not opposed to competition; I just want some guarantees and oversight—then I think we have to let them compete as socially responsible providers through their performance as reported against public policy criteria, and that's all these amendments attempt to do.

I hope you'll seriously consider them both, and although I've spoken to both of them, I realize you now have to go back to the first one and take them one by one.

Thank you, Mr. Chair.

[The Chair, Conservative, Brian Pallister]

Thank you.

Mr. Savage is next.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you, Mr. Chair.

I understand the concerns Ms. Wasylycia-Leis has laid out, and she has certainly argued them in this last week.

I'm not 100% sure what all this means. I'm wondering if there are any officials here who could give us an opinion as to what this would actually mean.

[The Chair, Conservative, Brian Pallister]

Gerry, please proceed.

[Gerry Salembier, Director, Financial Sector Policy Branch, Department of Finance]

Thank you, Mr. Chair.

I'll just take the first amendment, if we're discussing the first one first.

This amendment, as I see it, would have a regulator or a policy-maker stepping into business decision-making in the sense of determining to whom a particular product should be sold, the conditions under which it would be sold, and the location where it would be sold. At present we leave those decisions to business decision-making. We don't, at this point, try to dictate the design of a mortgage insurance product or try to specify to whom it should be sold.

I would suggest that if we head in the direction of setting criteria, as suggested in the amendment, it is actually quite a slippery slope to go down. That's not, generally speaking, the function the regulatory framework tries to perform.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

There is no regulatory body now. This would require a new regulatory body--is that what you're saying?

[Gerry Salembier]

It is certainly not a function that is now performed by a regulatory body. It's really business decision-making that determines to whom the products are sold.

The sector is regulated. The Superintendent of Financial Institutions regulates the risk of mortgage insurers. Since insurance is a shared jurisdiction, provincial governments regulate market conduct of insurance companies, including mortgage insurers; the committee heard testimony about certain practices that are prohibited under provincial law. There are disclosure requirements in federal law that require charges and fees to be made known to people purchasing insurance products. As well, of course, we have the Competition Act, which deals with any anti-competitive practices that may be occurring in this sector or in any other sector.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

I would maybe then ask Judy. Is that your view as well, Judy, that we'd have to set up a new regulatory agency to do this?

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

There are regulations now. This adds to the regulations and it adds the new function to existing government capacity. I don't think it's a revolutionary concept. It doesn't cause any upheaval; it simply adds a dimension to the process. It's necessary now, because up until this moment the bulk of the mortgage insurance has been carried by CMHC, from the point of view of certain public policy principles. So by opening it up, one could make the assumption that private mortgage insurers will put the public policy first. And many we heard from said by all means, they will.

All we're saying is let's be sure. Let's give government the capacity to check for that. If there's a problem, then we can take action. But do not leave it open and only say it's a business decision when in fact we're talking about fulfilling a public policy issue.

Remember, we're not talking about broad mortgage insurance. We're talking about mortgage insurance that's required because people don't have enough to put as a down payment. So we're talking about low-income Canadians, about people wanting to be homeowners but not having the means, and trying to make it possible.

I think if the government wants to go down this path, it has to marry the business objectives with some form of public policy criteria.

[The Chair, Conservative, Brian Pallister]

Okay. We have several members who would like to speak. We'll begin with Mr. McKay, Mr. Turner, then Mr. Del Mastro.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Salembier, currently the market is about 70% CMHC and 30% Genworth. We've agreed that there are now to be more entrants. So the reasonable expectation is that those entrants would eat into CMHC's share in particular, but to a lesser extent into Genworth because Genworth will compete, as will CMHC. Therefore, in terms of competition, the greater likelihood is that the competition will be in the more lucrative end of the market, the more—how shall we say—creditworthy risk.

Is there, in these amendments or in current regulation, anything that would prevent the perverse consequence of CHMC effectively ending up with the dogs of mortgage insurance?

[Gerry Salembier]

Thank you for the question and for the opportunity to respond.

First, If would say that CMHC's mandate as set out under the National Housing Act would not be affected by this provision. In fact, the market has long been open to new entry. CMHC does provide mortgage insurance in all parts of Canada, including in the north, on reserve, rural, single-industry towns, and so on. In fact, a very significant proportion of CMHC's business now is in markets that are not served by the only existing private mortgage insurer.

I would not necessarily accept the presumption, the basis of your question, that the new entrants would necessarily eat into the market share of CMHC or Genworth. That's something that will be a function of the new products and pricing that the new entrants bring to the market. Moreover, I'm not sure that it's safe to say as well that new entrants would necessarily only go for the less risky mortgages. At least some of the new entrants who have testified before the committee and who we've been dealing with in our regular day-to-day work have actually targeted the so-called near prime segments of the market; that is, the higher risk, the lower credit scorers who currently are not eligible for mortgage insurance. Some of the new entrants are targeting that slice of the market.

[John McKay, Liberal, Scarborough—Guildwood, ON]

When an entrant tries to get into the market, they'll say almost anything, particularly to regulatory officials. They'll say they're intending to target near-prime or however you want to describe it. But is there any obligation on the part of any of those new entrants to in fact expand the mortgage insurance pool so that more people would be entitled?

The second point, going to your CMHC issue.... CMHC is still going to be under some sort of mandate and obligation to provide the less creditworthy risk. But you would have to think that the lucrative part of its business is exposed, the consequence of which would be the reduction in dividend that it gives to the Government of Canada. Have you done any analysis as to what the reduction in revenues might actually be?

[Gerry Salembier]

Let me take the first question, on whether or not there's a likelihood that the wool has been pulled over my eyes in the discussions I've had with new entrants.

Of course that's always possible. However, new entrants have to get an approval from the Superintendent of Financial Institutions. There's an exhaustive process they have to follow in order to get that approval. It includes the submission of a detailed business plan and an assessment of the risks the business plan would pose.

A new entrant that proposes to target the lower credit scores and the higher-risk market would have to flag that in the application to the superintendent. The superintendent would take that into account when making a recommendation to the Minister of Finance for the approval of the incorporation of that new entry into the mortgage insurance market.

You asked as well whether there's an obligation—

[The Chair, Conservative, Brian Pallister]

I'm sorry, Mr. Salembier, but I'd like to clarify this. OSFI's obligation is solely as a prudential regulator. Is this correct? Their analysis of the applicants would be confined to that aspect of the companies' proposals, would it not?