Finance Committee on May 16th, 2012

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

I thought it was increased to $300 billion last year.

[Ling Wang]

It was increased in last year's budget implementation act, but that part of it has not been brought into force yet.

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

Okay. So that piece was on the books but it was never enacted.

[Jane Pearse]

Just to clarify on that, there are regulations required under the new act. That was introduced in last year's budget implementation act, and those regulations are being developed. So until those regulations come into force, that piece of the budget implementation act is not yet in force.

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

Okay. Thanks for that clarification.

In terms of the goal of providing greater stability of the financial system and better oversight by OSFI, is there any difference in risk between the insurance offered through CMHC or the private sector risk, given that both are backed by the government and the same rules apply? You're saying there's no difference in the risk for either in terms of the stability of the housing market. You're saying the risk is the same.

[Jane Pearse]

Well—

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

Or just that the oversight is the same.

[Jane Pearse]

—as my colleague said, both CMHC and the private mortgage insurers can issue mortgage insurance that is consistent with government-imposed criteria for government-backed mortgage insurance.

That's not to say that all private insurers, nor the private insurers versus the CMHC, run their business in the same way. As OSFI has oversight and supervisory responsibility for the private mortgage insurers and addresses the risks that are inherent in their business models and how they run their business with each of those companies individually, likewise there is an advantage to having OSFI as oversight on CMHC.

[The Chair, Conservative, James Rajotte]

I'd like a quick clarification following Ms. Nash's question about the changes in last year's budget implementation act. She mentioned it was increased from $250 billion to $300 billion. It has also reminded me there was another change with respect to the percentage the private insurers had to.... Was there another change? What was the other change, Ms. Pearse?

[Jane Pearse]

We introduced actually a new act, as part of the budget implementation act, called the Private Mortgage Insurers Housing....

[Ling Wang]

It's called the Protection of Residential Mortgage or Hypothecary Insurance Act.

[Jane Pearse]

There was a series of amendments made in the budget implementation act, one of which was increasing the limit for mortgage insurance issued by private sector mortgage insurance companies, but there was a series of other amendments that were structured such that we were moving what is currently a contractual arrangement between the government and the private mortgage insurers into a piece of legislation.

I'm not sure I'm answering your specific question.

[The Chair, Conservative, James Rajotte]

You are, actually. And I'm stretching my own rules on relevance, as well.

Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Since 2006, the government's exposure to risk in the housing market through CMHC's government-backed mortgage insurance has doubled, from $300 billion to $600 billion. That level of growth is quite extreme. To what factors do you attribute that doubling of government exposure?

[Jane Pearse]

I think you're referring to the limit on the allowable mortgage insurance that CMHC can issue. They're not at the limit, but there have been increases in housing prices and increases in mortgages, obviously. In an environment of relatively low interest rates, there is an enthusiasm of Canadians to enter the housing market.

[Scott Brison, Liberal, Kings—Hants, NS]

How close are we to the limit?

[Ling Wang]

Based on CMHC's latest annual report, I believe the number is at $567 billion.

[Scott Brison, Liberal, Kings—Hants, NS]

When do you anticipate the government will need to raise the limit?

[Jane Pearse]

The government has given no indication of raising that limit.

[Scott Brison, Liberal, Kings—Hants, NS]

In 2006 the government, in budget 2006, introduced 40-year mortgages with no down payment for the first time in Canadian history. Do you remember that in budget 2006?

[Ling Wang]

In 2006 it was not the government that introduced 40-year mortgages. It was introduced by the mortgage insurance companies.

[Scott Brison, Liberal, Kings—Hants, NS]

Yes, it was their decision, but the government allowed that to happen. There was a regulatory change in budget 2006, is that right?

[Jane Pearse]

We introduced the criteria that governed government-backed mortgage insurance in October 2008. Before that time, decisions about amortization were being made by the mortgage insurers themselves.

[Scott Brison, Liberal, Kings—Hants, NS]

Yes, but the decision to extend 40-year no-down-payment mortgages was made in 2006.

[Jane Pearse]

I believe in 2006 there was a decision to increase the competitiveness of the market and allow further mortgage insurers to enter.