Evidence of meeting #3 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cmhc.
A recording is available from Parliament.
Interim Chair and Associate Professor, College of Management and Economics, University of Guelph, As an Individual
The fees, as I understand it, are set aside in case of a catastrophe where that 90% guarantee has to be acted upon.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
But are they being paid annually? It is an amount that's being paid to the government because they're guaranteeing a certain amount in terms of a loan. Does that amount cover the loss that CMHC is incurring because the market is opening up?
Interim Chair and Associate Professor, College of Management and Economics, University of Guelph, As an Individual
Well, there are more people buying houses. Houses are going up in value. Loan amounts are going up. I would say that CMHC has not really lost in this.
President, Canada Mortgage and Housing Corporation
Perhaps a simpler way to answer this is the private insurers pay a fee to the government for the risk that's inherent to the government for the 90% guarantee. To the extent that private insurers earn market share--and they do, they have about 30% of the market--I think the key difference is all the income from CMHC is the Government of Canada's, whereas in the case of the private sector insurers it's the fee relative to the risk that's assumed, and the balance of the profit remains with the private shareholders.
NDP
President, Canada Mortgage and Housing Corporation
Could I answer that one, as odd as it may seem?
President, Canada Mortgage and Housing Corporation
It goes to a technical rule with respect to what kind of capital the lenders who are the beneficiaries of our insurance policies have to set aside. Under international banking rules, if you are, as we are, a 100% government entity, you don't have to put aside any capital. In order to have a competitive marketplace in Canada, it was important for the government to introduce a similar level of guarantee to the private sector insurers to allow them to compete with us. We believe competition is a good thing. As I've described, the 10% differential in the guarantee is just a means to try to level the differences in our mandates.
Conservative
Conservative
Randy Hoback Conservative Prince Albert, SK
Mr. Chair, again I'd like to congratulate you on your recent win in the election for chair of this committee. I know you've done a great job in the past and I look forward to working with you in the future.
I also would like to thank the witnesses for coming here on a Monday morning. On a nice day it's always tough to sit inside Centre Block when you could be outside enjoying the sunshine, but we appreciate your time here, for sure.
I have a few questions, just for clarification, coming off my Liberal colleague's questions. Ms. Kinsley, do you foresee an increase in your marketing costs because of the changes in the legislation?
President, Canada Mortgage and Housing Corporation
Frankly, I don't see an increase as a result of the change in the legislation. As has been mentioned many times, really what the legislation is doing is formalizing or codifying practice today. As I said in my opening comments, because we have been in a competitive environment for a long time, we really don't see any significant change.
Conservative
Randy Hoback Conservative Prince Albert, SK
Nothing is really changing other than the fact that the process is becoming public instead of being a private contract. Is that fair to say?
Conservative
Randy Hoback Conservative Prince Albert, SK
In the process with CMHC, a first-time home buyer pays the insurance premium upfront. Is that correct?
President, Canada Mortgage and Housing Corporation
Yes. A home buyer can either add it to the mortgage and amortize it over time with the mortgage, or pay it upfront.
Conservative
Randy Hoback Conservative Prince Albert, SK
Okay. Now let's say there's a 20-year mortgage for $100,000. The fee would be $1,800, if I remember correctly.
President, Canada Mortgage and Housing Corporation
On a $90,000 mortgage, yes.
Conservative
Randy Hoback Conservative Prince Albert, SK
That fee would be paid upfront.
I come from the great province of Saskatchewan, where housing has been going up substantially in the last few years. A year later, when I go to renew my mortgage, my lender may tell me that I could pull out some equity. The equity would be at 80%, so I would no longer need the CMHC guarantee. I would have used that insurance for only one year. Would I get any of that $1,800 back?
President, Canada Mortgage and Housing Corporation
No. Well, it was a direct question.
We insure the loan for the life of the loan, and this is important. To your point, on the one hand someone may want to see some of the premium returned; but imagine on the other side if home buyers, for employment reasons, need to move to another province, where perhaps it's more expensive, they can port or carry that mortgage with them, with the premium already paid. So it does allow them, over that 20 or 25 years, to be fully insured regardless of what home they ultimately reside in.
Conservative
Randy Hoback Conservative Prince Albert, SK
But in the private sector, one of the options they could offer if they wanted to offer a benefit or a feature is the ability to say yes, there is an opportunity to the private sector in how we structure the payment of that $1,800 so one would not actually take the hit up front.
