Finance Committee on June 20th, 2011

[Dr. Jane Londerville]

Oh, no; many countries have mortgage insurance now. Australia has only private mortgage insurance, for example; they sold their public insurer to a private sector company. Now they have three companies providing mortgage insurance in Australia and New Zealand.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

There's another question, and maybe Ms. Kinsley would like to answer this one.

What did Canadians get in return for their generosity to those in the private sector that they couldn't get from CMHC? Is there an advantage that anybody can see? We've heard the other side.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Okay. I'll give Ms. Kinsley a chance to answer.

[Karen Kinsley]

I'm going to self-interestedly say no.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Well, that's what I'm looking for.

[Karen Kinsley]

Kidding aside, with regard to the discussion earlier, we offer basically the same products and the same services through our lender clients to homebuyers. I think all the companies would argue that there may be some difference in service levels, and there may be some difference in turnaround times for approvals, but at the end of the day, on the substantive issue, which is insured or not, we operate the same.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Thank you.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Marston.

We'll go to Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you, witnesses, for appearing.

There's been much talk about not necessarily the entry but the legislation and the encouragement of the private sector. The argument goes, I suppose, that the public institutions....

And you've done an excellent job, Ms. Kinsley. I think we have a generation of success, maybe with some glitches. But the argument is that the public sector does a better job at guaranteeing the market.

I'm going to direct this question to Mr. Poschmann. The way I understand it, if we take the United States with Freddie Mac and Fannie Mae, weren't those two public institutions largely responsible for much of the turmoil that happened in the States? Do I understand this correctly in suggesting that much of the downturn and the havoc created in the States was as a result of government policy that didn't necessarily encourage good behaviour in lending practices? Am I right?

Perhaps you could expound on that.

[Finn Poschmann]

Thank you. I'd be delighted to.

The situation in the U.S. was a little bit different and it certainly formed a good flashing red light, so to speak.

Fannie Mae and Freddie Mac weren't the only government-sponsored enterprises who underwrote mortgage lending, and they continue to exist with the semblance of government backing that turned out to be real government backing. While they on the surface were publicly traded corporations, the risks to which they became exposed certainly did come back on the taxpayer.

You needed more than just that, though, to create the problems that we saw in the U.S. Part of it was an aggressive mandate aimed at increasing home ownership among low-income families and among low-income areas within the States. Extreme pressure from Congress and from the White House, through successive White Houses from the early 1990s through to the very end of the recent decade, pushed legislators to extend the mandates of Freddie Mae and Fannie Mac, to loosen their underwriting standards. Absolutely those expanded the risks to which U.S. taxpayers became exposed.

We didn't go quite as far on that route; in fact, the Government of Canada has put pressure at different times to restrain the lending practices or the underwriting practices by private insurers and by CMHC.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

So the government's changes in the rules.... For instance, we're going from 40 years to 35 years, and reducing that is a step in the right direction. Those are the things we have to do to guarantee this regardless of what happens in the United States.

[Finn Poschmann]

I think it is a step in the right direction. Forty-year amortizations may have their place in the world, but not in this one, not right now.

More important, I think, is the idea that we should “set it and forget it” with respect to amortization standards and the rules regarding what maximum loan-to-value ratios are minimums for insurance. Within that, let the market find its place and find its pricing. They tend to work out very well that way.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

If I have a few more minutes, Mr. Chair, I have a quick question for Ms. Bell.

Maybe you could just tell us a little more. In the industry committee, we learned that we have some great research going on in this country and some fabulous people who are doing the research. The difficulty was the translation from the research to the private sector. You've recognized this. I think that in your opening statement you talked about those things.

As an organization, are you tracking that? Do you see an improvement? What kind of improvement? Are we seeing 10% or 20%...? Maybe you could just quickly tell us what you see.

[Dr. Cindy Bell]

Certainly. That is of course something that has been identified in almost every report that has come out about the translation of discoveries into actual utility or application. Right now, we're trying to work with these industries and other end users. Sometimes there are regulatory issues and policy issues, or it may be something within industry, a gap that needs to be filled to address this.

We plan to work with those industries up front when we're developing our competitions, in order to get our scientists to work with them up front to ensure that there's actually uptake at the other end. This is sometimes part of the problem.

For example, a project that we're funding now is working on swine health. The actual pig breeders came together as a coalition in Canada and submitted a research project with a group of academic scientists. They're working together in a project and they know that the scientists will be delivering to them results and data that they can then use in their industry. That's a very important part.

We're also learning that we need to work with pharmaceutical companies in a new way, in more of a public-private partnership way, because they are struggling right now. For a lot of them, their patents are going off, and soon they will not be making the money they've made in the past. Drug discovery has been low.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Van Kesteren.

Monsieur Mai, s'il vous plaît, pour cinq minutes.

Mr. Mai, you have five minutes please.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you, Mr. Chair.

Thank you, witnesses, for being here.

I have a couple of questions. We understand that the idea of opening the market is for the benefit of consumers. Since so far we've opened up the markets by contracts, are there increased benefits for consumers? I'd like to know. Can we put that in numbers?

Mr. Poschmann.

[Finn Poschmann]

The benefits one would look for are through choice in a range of products. We've been working within the 90% framework more or less since the 1990s, and to this point mortgage insurance in Canada has mostly been an “any colour you like so long as it's black” market. There hasn't been a lot of range in products. There hasn't been a lot of range in the mortgage agreements themselves.

To speak about range and about benefits doesn't mean you simply have to add more risks to the system. You can design mechanisms that are well suited to the public--arguably, better suited than what we have now. Ms. Londerville mentioned one set of arrangements.

It has to do with the terms of mortgage insurance. In other words, do you pay a big lump sum up front, or do you pay a sliding premium that falls as the outstanding amount on the mortgage falls? There are many different ways you can tune the parameters that are put in. It's all about introducing choice and producing products that better match what it is that people demand.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Yes, but in terms of mortgage insurance premiums, for instance, since we have CMHC and we have the private sector that comes in, have mortgage insurance premiums been lowered? Yes?

[Finn Poschmann]

Yes.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Ms. Kinsley?

[Karen Kinsley]

I can respond to that.

CMHC tends to be the price setter in the marketplace. We have in fact lowered premiums and fees three times over the last decade or so. In all cases we have taken the lead to do that in part because of our public policy mandate. We must operate commercially, but that does not mean at maximum profit; it means commercially. When we've determined there's an ability to lower price, we have, and the private sector contenders have followed.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Obviously, opening the market means a bit of a loss for CMHC in terms of revenue because of the market. Is this being compensated for by the risk transfer fees we're getting in terms of opening the market for private companies?

Perhaps Ms. Londerville could comment on that.

[Dr. Jane Londerville]

I don't know if I'm the best person to address it.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Or Mr. Poschmann. In terms of numbers or in terms of what--