Finance Committee on June 20th, 2011

[The Chair, Conservative, James Rajotte]

I call this meeting to order, the third meeting of the Standing Committee on Finance.

Our orders of the day, pursuant to the order of reference of Wednesday, June 15, 2011, are for a study of Bill C-3, an act to implement certain provisions of the 2011 budget as updated on June 6, 2011.

I want to thank our witnesses very much for coming in on very short notice. I do apologize for that, but as you know, we have a very shortened parliamentary session here in order to pass this piece of legislation, hopefully.

We have three organizations and one person as an individual. I'll introduce them in the order of speaking.

From the C.D. Howe Institute, we have Mr. Finn Poschmann, vice-president for research. As an individual, we have Ms. Jane Londerville, interim chair and associate professor with the college of management and economics at the University of Guelph. From the Canada Mortgage and Housing Corporation, we have president Karen Kinsley and vice-president Pierre Serré, insurance product and business development. And from Genome Canada, we have Ms. Cindy Bell, the executive vice-president of corporate development.

Again, thank you all for being here.

We'll start in the order I mentioned. We'll start with Mr. Poschmann and we'll work our way down.

Mr. Poschmann, you have between five and ten minutes for an opening statement, please.

[Finn Poschmann, Vice-President, Research, C.D. Howe Institute]

Thank you very much, Mr. Chairman.

Good morning, members of the committee. It is an absolute delight to be here.

I am Finn Poschmann, vice-president of research at C.D. Howe Institute, a non-partisan, non-profit think tank. It is my absolute pleasure to open this conversation this morning on the proposed legislation before us, the budget implementation bill, Bill C-3.

The budget implementation bill has a number of different parts. I am going to focus exclusively on part 7, which introduces an act, the Protection of Residential Mortgage or Hypothecary Insurance Act. This is very much the interesting different and new part of the legislation. It is something that was expressed telegraphically in the two versions of budget 2011, wherein the government of the day proposed to introduce legislation extending a more stable framework for the financing and insurance of residential housing in Canada.

With this proposed act, the government has acted on its stated intention to introduce legislation and a framework for regulating the Canadian mortgage insurance business. This is probably a good thing. It is an important business too.

The mortgage market has made home ownership affordable for many millions of Canadians. The mortgage insurance market has given lenders the security they need to make ownership affordable for millions of first-time buyers and for others with less than a 25% down payment on the purchase of their homes.

The mortgage business--that is, the mortgage lending business and the mortgage insurance business--is very much part of the firmament of the Canadian residential housing system. It's part of our ethos. It has operated roughly as we know it today more or less since World War II.

It is important to get a feel for the size of the marketplace. CMHC alone is the largest insurer of residential mortgages in Canada. CMHC insures mortgages worth a face value of more than $500 billion. That's about one-third of Canada's GDP. That is a huge exposure. It also represents roughly 70% of the mortgage insurance market.

Part 7 of the bill, in the first instance, refers mostly to private insurers, a number of companies that in a typical year operate within roughly the other 30% of the mortgage insurance marketplace. This proposed act expresses in legislation and then regulation an arrangement that already exists in the form of agreements between the Department of Finance and the private mortgage insurers.

Private mortgage insurers, which operate, as I said, in roughly one-third of the residential mortgage insurance market that CMHC does not occupy, have their liabilities guaranteed by the Government of Canada, less a 10% deductible. We could call that a 90% guarantee. This makes it possible for the private insurers to compete in the residential mortgage insurance business with CMHC.

CMHC is a crown corporation, the liabilities of which are backed 100% by the full faith credit of the Government of Canada and therefore the federal taxpayer. This means that CMHC's cost of capital is less than it is for the private insurers. In order words, it costs the private insurers more to go to the market to raise money to underwrite the insurance premiums that they, in turn, write. It costs more because they do not have the Government of Canada's backing. But as I indicated, the system works well enough that the existing private insurers tend to hold about 30% of the market. The system more or less works, however imperfectly it may do so.

Turning to the proposed legislation generally, it is a very good thing to codify in legislation what currently exists as more or less informal practice in the form of agreements between the Department of Finance and the private insurers. This is especially so when the numbers are as large as they are in the mortgage insurance marketplace.

Mr. Chairman, a number of new folks around the committee table may not have heard me on this point: it's often of significant concern when legislation leaves too much of the detail to regulation. That can be a problem, because legislators, parliamentarians, then aren't clear on some very, very important details that determine the outcome of the things they legislate.

That's a common problem in legislation. I think it is not so much a problem in this case. I think the drafters of this tight legislation have done a pretty good job of striking a balance between legislation and leaving space to determine details and parameters in regulation. I think they've done a not at all bad job.

I mention this not just because the devil is always in the details, but because of the critical importance of getting regulation right and getting it right in this instance because it will have a huge impact on the mortgage insurance landscape going forward. What the legislation--again, part 7 of the act before us--imposes or creates is the authority for private mortgage insurers...or rather, it requires them to meet capital adequacy requirements defined by OSFI that other financial institutions must meet. This is nothing new, but we are going to rely for individual stability on capital adequacy requirements on the part of mortgage insurers.

The legislation also says that, by regulation, the minister may collect a fee from the mortgage insurers commensurate with the risk to which the Government of Canada is exposed through the Government of Canada's backing of the mortgage insurers' underwriting of mortgage lending. That is probably a very good thing. As it stands--or to this point--mortgage insurers have been setting aside in an account roughly 10% of the premiums they write to backstop, or rather, to have available in the event of failure.... This formalizes that arrangement. It allows the fees to be set by regulation and to do so ideally on a risk-adjusted basis. In other words, the government will collect fees commensurate with the risks to which Canadian taxpayers are exposed.

So on the face of it, this is a reasonably stable solution. In other words, with capital requirements defining the stability of individual financial institutions with an insurance premium or a reinsurance premium collected by the government and reflective of the risks to which the taxpayer is exposed, we have a potentially stable market outlook or market framework.

So it goes for the private mortgage insurance part of the business. In the last part of part 7, and a significant part of part 7--perhaps the most significant, from my perspective--are the sections dealing with the National Housing Act. These will affect CMHC quite specifically. What this does, in a way, is codify existing practice.

In other words, the legislation says that CMHC shall “provide” or “make available” to the minister, and the minister may make available to the public, any books or records that are relevant to determining the nature and scope of the corporation's activities and, perforce, the risks to which CMHC is exposed through its mortgage underwriting activities. Now, this is a good thing. Again, it represents something that's not very different in form, in face, from current arrangements.

Naturally, the Minister of Finance has an interest in looking at CMHC's books, as does OSFI. There are a number of informal arrangements through which our oversight agencies are able to have a look at what it is that CMHC does and the risks to which taxpayers are exposed through their insurance and securitization activities. However, it is an informal arrangement, not a formal one. It's good to have this in legislation.

The final point on this is that the legislation also grants authority to write regulation that will determine a fee that CMHC may be charged by the Government of Canada, representing the risks to which CMHC's activities expose the federal taxpayer. If this fee is risk-adjusted and matches the risks that CMHC takes on, we're moving into a new framework or a new sort of marketplace, where you have a much more level playing field, as between the private insurers and between CMHC. If the fees that the minister or the Government of Canada may charge CMHC are indeed risk-adjusted and do reflect that CMHC's liabilities are 100% backed by the Government of Canada, as opposed to 90% backed, we have moved or we will have moved--as I've said--into a very different, more competitive, more level landscape in the mortgage insurance business, and this is potentially a very good thing.

I'll stop there.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Poschmann.

We'll now go to you, Ms. Londerville, for your presentation, please.

[Dr. Jane Londerville, Interim Chair and Associate Professor, College of Management and Economics, University of Guelph, As an Individual]

Thank you.

I have been a professor of real estate at the University of Guelph since 1993, teaching and doing research in the area of mortgage finance--among other interests. Prior to that, I did PhD studies in urban land economics at UBC, worked as a real estate consultant for six years for Ernst and Young, and completed an MBA at Harvard.

This past fall, I wrote an analysis of the mortgage insurance system in Canada for the Macdonald-Laurier Institute. Some of my comments today will be taken from that report.

I appreciate the opportunity to speak to this today. I will also be concentrating on part 7, which is where my expertise lies.

Canada can be justifiably proud of our mortgage finance system. Careful underwriting and legislation have allowed us to weather the global financial crisis better than almost any other country. The percentage of mortgages three months or more in arrears was less than 0.5% in February of this year. Since 1990 it has never been more than 0.7%. Even when--in quotation marks--“healthy”, the U.S. arrears rate was much higher than this.

So while the system is strong, there is always room for improvement. This legislation is a good start to recognizing the importance of opening the mortgage insurance market in Canada to competition from the private companies to give consumers greater choice and to allow for increased insurance product innovation.

Clause 42 allows the minister to tighten underwriting criteria, a critical safeguard of Canada's system that prevented the types of careless lending in the U.S. from happening here. The minister can tighten underwriting requirements as deemed necessary, such as the reduction in the maximum amortization period for insured mortgages to 30 years, which was done this year. Mortgage insurance companies must follow these guidelines to retain their 90% backing, which enforces their adherence to this.

Despite the positive aspects of this proposed legislation, I have a couple of remaining concerns. As Finn mentioned, the CMHC, as a crown corporation, has its mortgage insurance policies implicitly 100% guaranteed by the federal government under the Basel accord. CMHC-insured mortgages, then, require no capital reserves by financial institutions. Clauses 22 and 24 in this act retain the corresponding maximum protection for private companies at only 90%. At the moment, the lender decides who will insure a mortgage loan: CMHC or a private insurer.

As a consequence, banks whose loans are insured through a private firm must set aside some capital reserves against the possibility of default by the insurer, which is not a requirement if the loan is insured by CMHC. Thus, rates of return are higher on CMHC-backed mortgages.

When profit margins are thin and banks are nervous about capital reserves, as in the financial crisis that began in 2008, this makes a major difference. The evidence of this is in the growth of CMHC's mortgage insurance premium income during 2008 and the drop in Genworth's.

Because of the difference in levels of guarantee, each financial institution's treasury or risk officer determines how much of the institution's mortgage insurance business can be sent to private investors, limiting the amount because of the capital reserve requirements. The implication of this for consumers is reduced choice. This is not a competitive marketplace with consumers freely choosing which company will insure their loan, even though they are the ones who pay the large upfront fee for this insurance.

CMHC's stated plan for 2010 was to have $520 billion in insurance outstanding, which represents approximately 70% of the market. Genworth has been competing in this market since 1995 and holds most of the remaining 30%. To me, one party with such a dominant share of the market implies inadequate competition. There are now two relatively new competitors in the market to battle for the private company share of insurance. To make this a truly competitive market, changes to the 90% guarantee are necessary, either by reducing CMHC's guarantee or by raising the one for the private sector.

The segment of CMHC that provides mortgage insurance and handles mortgage bonds and mortgage-backed securities is really acting as a large financial institution and does it very well. However, it does not at the moment fall under the oversight of the Office of the Superintendent of Financial Institutions. Private mortgage insurers are required to do extensive quarterly reporting to OSFI to ensure they are following regulations.

These data are publicly available.

Given exposure of taxpayers to 100% of CMHC's mortgage insurance losses, it would seem prudent for OSFI to also regulate CMHC.

To conclude, I welcome the introduction of this legislation. However, I believe that through levelling the playing field for public and private mortgage insurers by giving the same guarantee and regulating through the same office, consumers would benefit. There would be more private insurers competing for their business, ensuring competitive fees and greater incentives for product innovation.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now go to Ms. Kinsley, please.

[Karen Kinsley, President, Canada Mortgage and Housing Corporation]

Thank you, Mr. Chair.

It's a pleasure to be here to discuss the budget implementation bill as it relates to Canada Mortgage and Housing Corporation's mortgage loan insurance business.

By way of background, mortgage loan insurance is mandatory for federally regulated lenders when the buyer of a home has less than a 20% down payment.

This insurance indemnifies the mortgage lender against loss if a borrower defaults, and allows qualified borrowers to access the housing market with less than a 20% down payment and at interest rates comparable to those with larger down payments.

The mortgage insurance premium is based on the amount of the mortgage and varies based on the loan-to-value ratio of the mortgage. As an example, a borrower who wishes to purchase a $100,000 house with a down payment of 10% would obviously require a mortgage of $90,000 and would have a loan-to-value ratio of 90%. The premium in this case would be 2% of the mortgage amount, or roughly $1,800.

Mortgage loan insurance can be purchased from CMHC or from a private insurer. CMHC is the largest insurer of mortgage loans in Canada, with insured mortgages of approximately $500 billion, or about 70% of the insured mortgage market. CMHC currently has two private sector competitors; although at times there have been as many as four.

There are some fundamental differences between CMHC and private insurers. As Canada's national housing agency, CMHC has a public policy mandate to provide mortgage loan insurance to qualified borrowers in all parts of the country and for all forms of housing. In fact, CMHC is the only mortgage insurer for large multi-unit rental properties and for nursing and retirement homes. As well, a significant percentage of our insured high-ratio homeowner loans is in rural areas and smaller communities that are traditionally not as well served by private insurers. Together, these areas made up close to 44% of our business last year.

Private sector insurers, on the other hand, have the ability to not serve those areas of the country or housing forms they deem to be less profitable. This is why CMHC is backed by a 100% guarantee by the Government of Canada, while private insurers are covered at 90%. These long-standing levels of guarantee are reflected in the budget implementation bill.

CMHC's value as a public insurer was particularly evident during the recent global economic downturn when CMHC was a stabilizing presence and ensured that qualified Canadian borrowers could continue to buy homes after most private mortgage insurers exited the market due to the precarious situation of their U.S. parent companies.

CMHC operates its mortgage insurance business on a commercial basis, at no cost to taxpayers. All income generated by CMHC's mortgage insurance activity goes directly to the Government of Canada and serves to reduce the government's annual deficit.

Over the past decade, CMHC has helped to reduce the Government of Canada's accumulated deficit by $12.3 billion through income taxes we have paid and our residual net income, all of which is attributed to the Government of Canada. The vast majority of this $12.3 billion contribution was the result of CMHC's mortgage loan insurance operations.

I mentioned a moment ago that CMHC has insured mortgages of about $500 billion. The quality of this portfolio is strong. For example, the average CMHC-insured household has about 44% equity in the home. We follow the guidelines set by the Office of the Superintendent of Financial Institutions. In particular, we hold 200%, or double the minimum capital test set by OSFI for private insurers.

Turning to the budget implementation bill, CMHC supports the legislative framework introduced by the Government of Canada and the government's ongoing efforts to maintain a strong Canadian housing market. While the regulations have yet to be drafted, we do not foresee a significant impact on CMHC's operations, given that the legislative framework essentially formalizes existing mortgage insurance arrangements and relationships.

For example, CMHC already operates within the Department of Finance parameters for government-backed mortgage insurance, which is a key element of the legislative framework. We also provide the government with housing market advice and information, as well as aggregated information on the evolution and status of our insured loan portfolio.

Finally, CMHC provides significant disclosure of its mortgage insurance operations through its annual corporate plan summary and annual report, both of which are tabled in Parliament and are widely available to Canadians.

Thank you again for the opportunity to be here. I would be pleased to answer any questions the committee has at this time.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We will now hear from Mrs. Bell from Genome Canada, please.

[Dr. Cindy Bell, Executive Vice-President, Corporate Development, Genome Canada]

Good morning. I'm Dr. Cindy Bell, and I'm the executive vice-president at Genome Canada. I'm here on behalf of our president, Dr. Pierre Meulien.

I am pleased to appear in front of this committee today in reference to the $65 million provided in the budget to Genome Canada. As many of you may be aware, Genome Canada and the six regional Genome centres located across Canada are not-for-profit corporations that work together as the primary funding and information resource relating to genomics research in Canada. It is a unique model of federal and provincial partnering. Since 2000, and with the support of parliamentarians, including several of you around the table today, the Government of Canada has committed $915 million to Genome Canada, to which approximately $1 billion in partnered co-funding has been committed.

The first decade of Genome Canada has been dedicated to building what we call the “Canadian genomics enterprise”, funding excellent science identified through a best-in-class international peer review process; building a community across Canada of genomic scientists who many recognize as international leaders in their fields; supporting state-of-the-art science and technology innovation centres to provide those genomic scientists with access to leading-edge technologies; building strong linkages and partnerships with the international genomics research community; and paving the way for real-world applications by considering up front the ethical, economic, environmental, legal, and social aspects of the genomics research we support.

We have done all of this keeping an eye on how these funds have been expended. In this regard, we've undergone a number of third-arty assessments, all of which have been positive in their findings.

We are now beginning to see the results of the federal investment in research, and the results are exciting: the development of a diagnostic test for fatal heart disease, resulting in the life-saving treatment of implantation of defibrillators into the chests of those who are affected; Canada has the leading platform in the world for conifer research, enabling evidence-based decision-making in the management of our forests, one of Canada's most precious resources; demonstration that genes are involved in the underlying cause of autism, resulting in the development of diagnostics for a percentage of those affected and leading to early identification and intervention; impacts on food security, with research aimed at helping farmers increase crop yields and providing the livestock and fisheries industries with tools to raise healthier animals, giving Canadian industries a competitive advantage globally; and addressing head on the challenges facing the environment, such as using microbial communities to diminish the environmental impacts of the oil and pulp and paper industries, to clean up contaminated sites, and to create new biofuels.

The next logical step for Genome Canada is a sharpened focus on the translation of genomics discoveries to applications, ensuring that new knowledge translates into innovations that enhance Canada's prosperity in support of the Government of Canada's innovation agenda, which is crucial to the economic development of this country.

Genome Canada is currently developing a strategic plan that will map out our strategy for the next five years, building on Canada's strengths to help Canadians take their place in the global bio-economy, an economy where biological sciences and biotechnology contribute to a significant share of economic output.

The $75 million invested in Genome Canada last year allowed us to take the first step in that direction. Within months of the 2010 federal budget announcement, Genome Canada launched competitions to identify where best to make its investments, following the principles of the economic action plan.

A $60-million competition, with funding directed towards research with a high potential for impact and a particular emphasis on economic return, was launched. The result is $30 million invested in research in the areas of forestry and the environment and $30 million supporting strategically important research in Genome Canada's other sectors: human health, agriculture, and fisheries. With partner funding, a total of $120 million is now in the hands of some of the best scientists in the world.

We also had a $15 million investment in our science and technology innovation centres. These centres, which are located across Canada, provide state-of-the-art technologies, expertise, and infrastructure to Genome Canada funded and other researchers from academia and industry.

The June 2011 budget, which is the subject of your deliberations today, provides Genome Canada with $65 million. At Genome Canada's June 2011 board of directors meeting, they approved a plan for the investment of $65 million, which includes a $40 million competition focused on human health.

As part of our new approach, we will place even greater emphasis on translating the results of research into practical applications that create benefits to Canadians. We will engage end users, such as industry, federal and provincial policy-makers, and regulators upfront and throughout the research process to ensure the relevance of the research we support. We also have a $5 million investment proposed on bioinformatics and computational biology. Due to the high throughput nature of the genome sciences, an immense quantity of data is generated that needs to be stored and analyzed in more and more sophisticated ways. For example, a single week's run on a next-generation DNA sequencing machine generates approximately one terabyte, or 1,000 gigabytes, of data.

We've included a $6.5 million investment in three key international initiatives that we support, each led by a Canadian scientist. As requested, the remainder of the funds will be used to support the operations of Genome Canada and the regional genome centres.

Our vision for the future will require greater financial investments. We will make this a reality by growing the funding pie, further leveraging the federal government's investment and bringing new investors to the table.

In 2010 we welcomed a new president and CEO, Dr. Meulien. He is well positioned to lead the Canadian genomics enterprise and strengthen the role of genomics research in the development of the Canadian bioeconomy in partnership with the Government of Canada.

Genome Canada is excited about the future and the potential impact of genomics research on the health and well-being of Canadians. To quote one of our scientific leaders, “The way we define the success of our research is to start a project, finish a project, and along the way make discoveries that have an impact.”

We strongly encourage the passage of this important budget bill.

I look forward to any questions.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation, Dr. Bell.

We'll begin with questions from members. I just remind members that this committee has agreed to rounds of five minutes. I remind our witnesses that members have very limited time, so please be as brief as possible in your responses.

We'll begin our round with Ms. Nash, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you to all the witnesses for being here this morning.

My first question is for Mr. Poschmann and is on the mortgage insurance issue.

When the private mortgage insurers came into Canada, the large insurers, like the now defunct AIG and Genworth, the result was that borrowers signed up for about $50 billion in 40-year mortgages, which were some of the most expensive and least flexible mortgages that there could be. Some $10 billion of those mortgages required no money down. Many Canadians got into debt over their heads.

We've heard from Ms. Kinsley that in fact Canada weathered the downturn better than most other countries, and that Canada is relatively stable. Why would Canada now want to increase its mortgage risk? When we just increased the liability of Canadian taxpayers to private mortgage insurers in 2006 to $200 billion, why would we increase that liability for Canadian taxpayers up to $300 billion today?

[Finn Poschmann]

That is a very good question. Primarily, the goal for consumers is to introduce more choice and competition in the marketplace. However, to do so would be unwise absent prudent oversight framework, prudent financial reporting standards, and prudent capital standards.

If we reflect back to the state of the market in the mid-2000s, interest rates were very low and lenders were underwriting business that many of us would see as excessively risky today. In fact, it proved necessary subsequently for the government of the day to pressure CMHC not to underwrite 40-year mortgages on their own behalf, and in fact to wind down the maximum amortization periods and to limit the number of high-value-ratio loans--in other words, to impose higher down payments on all market participants. A prudently managed marketplace is absolutely essential to the framework.

[Peggy Nash, NDP, Parkdale—High Park, ON]

We know that in the U.S. many of those who make the risk assessment clearly got it very wrong. I want to express concern that the Canadian public might be on the hook for private insurers. In other sorts of insurance, the insurance industry underwrites its own liabilities. I'm concerned about the public.

I would like to ask Ms. Kinsley a question. You talked about CMHC underwriting mortgages that private insurance carriers don't normally underwrite. Because the private insurers only take on the most profitable mortgages, are they cherry-picking mortgages in a way that undermines CMHC? It seems there are many positive aspects that Canadians get from CMHC. Would CMHC be able to earn even more money for Canadians if the private insurers weren't cherry-picking those better risks?

[Karen Kinsley]

Thank you for the question.

I touched a little bit on that very point. CMHC, unlike the private insurers, has a public policy mandate. Key to that is the issue you've raised, which is insuring not only all parts of the country, rural and smaller communities particularly, but also all forms of housing. It's not just about home ownership. We believe that many Canadians should in fact dwell in rental housing. Of course we've seen the situation in the U.S. when borrowers perhaps have been pushed into home ownership too early. We don't believe that makes any sense. We in fact support rental housing as well as home ownership.

The issue of the differential in our mandate and the cost of that really gets to the nub of the difference in the guarantee between CMHC and the private insurers. We are, by virtue of being a crown corporation, 100% guaranteed by the Government of Canada. Recognizing that private insurers can select the markets they choose to be in, and obviously they will not serve those that are less profitable, the government has set the guarantee for private insurers at 90%. That 10% differential in the guarantee, in order to create a level playing field between us, compensates us for that difference.

We have been able to operate successfully on that basis, as is evident by our annual returns, and the over $12 billion that we've been able to return to the government.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair, and welcome to all our witnesses.

As we're exploring this question of obligation by CMHC to do things such as underwrite rental properties, do you also underwrite low-income housing?

[Karen Kinsley]

We underwrite low-income housing or affordable housing but on a commercial basis. Just to be clear, we must, under our mandate in mortgage insurance, operate on a commercial basis with no cost to taxpayers. The question might be how we do that when it's affordable housing.

Fairly simply, because the rents are so low, they're affordable by definition. We are able to underwrite those properties recognizing that in the event, heaven forbid, there is a default, there is some room in the marketplace to move those rents up to market. We wouldn't want to do that, but it is a commercial mitigant to our underwriting in those areas.

To be clear, this is a commercial process separate from any subsidies that we may administer on behalf of the government for affordable housing.

[Shelly Glover, Conservative, Saint Boniface, MB]

Right, but what's very important to most Canadians who would have to rent those low-income housing units is the fact that if the owners of the low-income housing units didn't have access to CMHC with that 100% guarantee, they wouldn't exist. The private insurers don't underwrite those things, correct?

[Karen Kinsley]

You're absolutely correct.

[Shelly Glover, Conservative, Saint Boniface, MB]

For low-income people, the most vulnerable, who have to pay for rentals, this is something that's absolutely of benefit to Canadians, the fact that we do have the 100% guarantee. I take issue with what Ms. Londerville had to say about perhaps decreasing the 100% and increasing the 90% for private. It's like comparing apples and oranges. The fact that we need to take care of those who need some help makes this absolutely palatable.

I am very pleased to see the transparency issue in the bill. Agreements in the past were done out of the public view. This legislation would ensure there is transparency.

Perhaps Mr. Poschmann could speak to how he feels. Do you think public legislation is superior to private contracts when it comes to transparency?

[Finn Poschmann]

Well, to be clear, we're talking about bringing into legislation a contract framework that has previously governed the relationship between the Government of Canada, through the Department of Finance, and the private insurers.

Transparency is almost everywhere to be desired, and it certainly is here. One, from the point of view of private insurers who do publish quarterly statements through OSFI, we want to know the risks to which participants in the financial institutions framework are exposed as part of an ordinary financial stability mandate. What's new and different here is potentially bringing CMHC fully within that framework.

I think it's absolutely superb that CMHC is well capitalized, that its lending activities are managed prudently, and that its securitization activities are professionally run. This is absolutely terrific news. Canada's public service employees and its crown agencies to all appearances do a very good job. What's important, though, is that Canadians, Parliament, taxpayers, and others should see it, and that's what this framework potentially does. We should understand better the risks to which Canadian taxpayers are exposed.

If you compare, for instance, the public documents, the annual reports and financial reports prepared by CMHC, with the regular reporting from Fannie Mae and Freddie Mac in U.S., it's night and day. We know a lot more about the exposures of Fannie Mae and Freddie Mac in the U.S. than we do in Canada.

[The Chair, Conservative, James Rajotte]

You have about 30 seconds for a brief question.

[Shelly Glover, Conservative, Saint Boniface, MB]

With regard to the $300-billion increase, everyone who applies for a mortgage still has to qualify. The criteria are still the same. When we talk about that increase, it doesn't change the fact that our government has put in place some stricter measures to protect against people who are going into too large of a personal debt. That is why we reduced, as Ms. Nash said, from a 40-year amortization now down to a 30-year amortization. Under this government we've made a number of changes, and I think they reflect well toward reducing the personal debt of Canadians.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Glover.

We'll go to Mr. Pacetti, please. Welcome back.

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

Thank you, Mr. Chair.

Congratulations on your election, once again. I'll miss the committee.

Thank you to the witnesses for being here.

This is more for a point of clarification in terms of how it works. I'm not sure who's going to be able to answer this.

It's the lenders who decide who they're going to utilize as the end user, so it's not clear who's making the money and who's going to pay more. I think Mr. Poschmann said that it's going to cost more to deal with the private sector, but Ms. Nash was alluding to the fact that the private sector will probably be able to have the pick of the litter.

Who's going to be making the money, and how much more will it cost consumers even though we are opening up the market?

I guess this question is for you, Mr. Poschmann.

[Finn Poschmann]

Thank you, Mr. Pacetti.

First, our legislative framework generally requires that mortgage insurance be acquired by a borrower in respect of mortgage lending where the down payment is less than 25%. Now, the arrangement as between the borrower and the lender and the insurer is subject to negotiation. There's no absolute insistence that CMHC be the insurer in every instance.