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.