Finance Committee on May 29th, 2012

[Professor Jane Londerville, University of Guelph, As an Individual]

I appreciate the opportunity to appear before this committee regarding division 11 of the budget bill. I've been a professor of real estate at the University of Guelph since 1993, teaching and doing research in the area of housing and mortgage finance, among other interests. I've written several articles about the mortgage finance system in Canada for the Macdonald-Laurier Institute, which are available on their website.

Canada can be justly proud of our mortgage finance system. Careful underwriting and legislation has allowed us to weather the global financial crisis better than almost any other country. While the system is strong, improvements can be made. The legislation regulating covered bonds in division 11 is important. Many European investors are not permitted to invest in covered bonds in countries where there is no legislation. So this will help the banks market these securities, bringing more money into the mortgage finance system.

On the other hand, financial institutions are prevented from using insured mortgages as collateral in these—and that will have the opposite effect. Investors do prefer secure insured loans in an investment pool. So this does reduce the demand for mortgage insurance—which was the goal of restricting that— particularly that purchased by banks on loans that don't need to be insured. So, overall, I think it is a sensible measure.

The legislation recognizes a major shift in CMHC's focus over the years. Mortgage insurance and securitization compose a large and growing portion of the corporation's activities relative to those related to social housing.

Private mortgage insurers are overseen by the Office of the Superintendent of Financial Institutions, and this moves CMHC into that realm as well. I don't anticipate that the annual reviews by OSFI will raise any alarms. CMHC has been very prudent in their management of their mortgage insurance portfolio and holds twice the reserves recommended by OSFI.

The legislation also places the deputy minister of Finance and deputy minister of Human Resources and Skills Development Canada as ex-officio members of the board of CMHC. It's critical that in an effort to properly oversee the commercial activities undertaken by CMHC, we do not forget their vital role in housing policy and the provision of affordable housing for lower income households and individuals in Canada.

The legislation also requires that CMHC make available to the public the books, records, and information that are required by legislation. It is not yet clear what will be required under this, but I look forward to greater transparency of information from CMHC along the lines of what private mortgage insurers are required to provide.

Despite the positive aspects of the proposed legislation, I have a couple of remaining concerns. The mortgage insurance policies of CMHC, as a result of it being a crown corporation, are implicitly 100% guaranteed by the federal government under the Basel Accord. As a result, CMHC mortgages require no capital reserves by financial institutions. The protection limit for private mortgage insurance companies is only 90%.

As a consequence, the 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 for CMHC loans. Thus, rates of return are higher on CMHC-backed mortgages, and when profit margins are thin and banks are nervous about capital reserves, as in the financial crisis beginning in 2008, that made a major difference.

CMHC argues that the difference in the guarantee is necessary because of their social mandate and the fact that they insure multi-unit residential buildings. In their latest annual report they state that “46.5% of our total rental and high ratio business addressed gaps in the marketplace left by private sector competitors".

This is where more public access to CMHC data would be helpful. CMHC has a monopoly on the provision of loan insurance for multi-family buildings, including nursing and retirement homes. If the private sector is not permitted to compete in this area, it does not make sense to include these loans in any comparison with them. There's no indication that CMHC does not make a profit on the provision of this insurance. An objective and thorough analysis of the geographic location of privately insured loans relative to CMHC is necessary to back that statement up, and I'd be surprised if there's any material difference. The lender, not the borrower, decides who will insure a mortgage loan—CMHC or a private insurer.

So this is not a competitive marketplace with consumers freely choosing which company will insure their loan, even though they're the ones who pay the large upfront fee. CMHC currently has 70% of the market and one party having such a dominant share, to me, implies inadequate competition.

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

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Does the Department of Justice have an opening statement to make?

[Michael Zigayer, Senior Counsel, Criminal Law Policy Section, Department of Justice]

Mr. Chair, no, we don't.

[The Chair, Conservative, James Rajotte]

Okay. You'll be responding to questions. We have had Mr. Bolton and Mr. Oliver before, so I don't know if you wish to add to that statement, or if you'll simply be available for questions.

I do have a statement from Deputy Chief Brannagan. Welcome to the committee and please give your opening statement.

[Jerome Brannagan, Deputy Chief, Operations, Windsor Police Service]

Thank you very much.

Windsor, Ontario is home to 200,000 citizens and welcomes thousands of visitors daily through the Windsor-Detroit Tunnel, the Ambassador Bridge, and by way of boat across the Detroit River. The river is one kilometre wide, separating the great countries of Canada and the United States of America. It stretches about 22 kilometres along the Windsor border.

The mission of the Windsor police service is "to prevent and investigate crime, to provide support and to enforce the law in partnership with the community". We take our mission duties very seriously. Probably the most important component of our mission is partnerships, the relationships we have developed over many years within our regional community and with law enforcement partners.

These law enforcement partnerships encompass municipal agencies, along with provincial, state, and federal law enforcement groups on both sides of the border. We all require the support of each other to keep our cities and regions safe and secure.

The Detroit River plays host to almost a half million recreational boats from both Canada and the Untied States during the warmer months. Close to 5,000 commercial or ocean-going ships will dock in Windsor or Detroit or pass between Canada and the United States along this section of the Detroit River yearly. It is an extremely busy waterway.

The Windsor police service's main responsibility is to the citizens of Windsor. That being said, we accept our role as first responders to any police-related matter that occurs in our city or region; this includes the Detroit River. Sometimes these issues may have a more direct impact on provincial or national interests. Certainly, the link to Canada along the NAFTA highway, from Mexico through the United States and across the Ambassador Bridge into Windsor, would be one such example.

As first responders, the Windsor police service is familiar with many issues surrounding the policing of the Ambassador Bridge. It also holds true for policing the waterways between Detroit and Windsor. Police partnerships in my region have grown exponentially into incredible, trusting, focused relationships, all with the same goal: protecting and serving our citizens. We have found ways to fight cross-border crime from previously informal ways of working things out to a more standardized, official and, most importantly, an authorized-by-law manner of policing.

Windsor police has been a member of BEST, the Border Enforcement Security Task Force, since 2009. A Windsor police officer works with numerous multijurisdictional law enforcement agencies from Ontario and the United States in an office in Detroit, Michigan. The creation of this BEST unit has allowed my police agency to acquire real-time intelligence information from the United States. We can then act on that information, or disseminate it accordingly.

Thanks to title 19 training, my officers have all the authorities of a United States customs officer and are authorized by United States law to carry firearms into the Untied States of America.

We've had numerous cross-border investigations end successfully in both Ontario and the Untied States. For many years, criminals have taken advantage of the failure of law enforcement to cooperate in cross-border investigations. Illegal commodities, such as firearms, drugs, and human smuggling, have flourished through cross-border transport. We need to continue to cooperate in this sensitive style of police work to make it that much more difficult for organized criminals to exploit our cross-border law-enforcement weaknesses.

Shiprider is certainly a valued, enhanced threat to organized cross-border crime. The Windsor police service believes in and embraces Shiprider's value and we welcome the partnership it creates between Canada and the United States of America.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, sir, for your presentation.

We'll start with Ms. Nash for members' questions.

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

Thank you very much, and welcome to the witnesses.

I'll start with you, Mr. Kennedy, on CSIS. I have to start by saying that we're dealing with a very large piece of legislation with very many topics. This evening we're dealing with EI, pensions, public-private partnerships, CSIS, CMHC, and cross-border law enforcement. So we're dealing with many-splendored topics.

When we had government officials here, last week I think it was, they said that the rationale for removing the Inspector General from oversight of CSIS was that it was a duplication and that the SIRC could just as easily provide that same service, that it was the same oversight, even though right now, as I understand it, the chair of SIRC is vacant. They said this is simply a duplication.

From your comments, it sounds as if you would not agree with that analysis. Can you explain why?

[Paul Kennedy]

One thing I'd recommend, and I'm surprised not to see, is more cans of Red Bull out here.

[Some hon. members]

Oh, oh!

[Paul Kennedy]

It's a testament to your endurance. I got a headache just listening to parts of the last panel.

I've had 20 years in the national security area. It's an area that's very fraught with challenges, where you have to have a healthy regard that someone is watching you. Everything's covert, everything's secret, and you think you're getting away with things. But one of the realities I tell people is that there's no such thing as a secret. It's useful for politicians to remember that too, especially if you're in government. They're tiny time capsules. Those things will blow up in your face after a day, a year, five years, or ten years; if there's anything wrong, it will come out.

If you look at the report that was released by the Inspector General in May of this year, she goes back over a period of time, and it is certainly written as a farewell piece. You'll see that I articulate in my brief some of the reasons for what she does, and what's unique in the work the Inspector General does.

One of the key things is that SIRC is largely a reactive body. They deal with highly strategic issues and public complaints. They can be asked to do something, and if they choose to they can do something the minister asks of them. The IG is there to serve the minister. The minister can say, “You do it for me because your job is to tell me. It's not to go out and tell the public”. You control the service's activities by operational policies and ministerial directives, plus obviously the law, because those come from mistakes that have been made in the past 28 years. I was their general counsel, so I know. I was there for a lot of the mistakes. I didn't necessarily make them, but how do you fix them? You control your IOs by developing policies.

The IG has a unique power: the ability to monitor. You don't see that kind of language used for SIRC, which does post-factor reviews. So the IG can actually monitor active investigative files to see how you are doing this, whether you have complied with those policies, and what kind of performance you are getting.

When I looked at it I didn't see anyone giving SIRC the power to monitor. As a matter of fact, I didn't see anyone transferring the files from the IG to SIRC for them to do anything. I don't know what's going to happen to them. Usually legislation would provide for some transition. Does that mean they just sit there, and 28 years of work dies? No money has been transferred, so that million dollars disappears. No personnel have been transferred, therefore no expertise. So you have someone who has some of the same things, but not the same powers.

If you look at what they do, they get down to the nitty-gritty. They'll tell you, “You've got problems with your computer system. You're not tracking the data. You're not tracking to whom or with whom you're sharing your data”. There's all sorts of stuff they do that's not otherwise being done.

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

Those are really helpful points you're making. I have only 30 seconds left. We have such a short time.

Do you think the outcome of this, which is being presented as a cost-saving measure, could actually lead to a repetition of some of the old problems Canada used to have with the RCMP years back when we didn't have this kind of oversight?

[Paul Kennedy]

As I mentioned, it was born out of crises. I was there during a whole series of crises. It's impossible for an intelligence service to define or defend its position in the public, because they'd say, “I can't tell you what it is. It's classified information”. It requires, on the goodwill of the people, that there are vigorous regimes there that would have detected it...and to have someone else speak on their behalf, to assure the minister—or [Inaudible--Editor] through the public. When you don't have that you end up with public inquiries.

Almost all the RCMP who went through the bad days, when members were charged with criminal offences for their activities during the Quebec crisis, are gone. There are mostly civilians there now who have never had that experience. You're going to find them making new mistakes.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. Nash.

We'll go to Ms. Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

I welcome the witnesses.

I'm a little surprised by Mr. Kennedy's statements, given the officials who were here, including Public Safety, who presented on this topic. In fact, many of the things that were outlined to us as parliamentarians are not what have been suggested by Mr. Kennedy.

Mr. Kennedy, were you able to watch the proceedings of the officials?

[Paul Kennedy]

No, I was happily enjoying my retirement until I saw this bill.

[Shelly Glover, Conservative, Saint Boniface, MB]

Perhaps we ought to explain for your benefit that many of the things you've suggested are actually wrong.

[Paul Kennedy]

Terrible.

[Shelly Glover, Conservative, Saint Boniface, MB]

I would suggest that you might want to review what the officials said, because they made it very clear that many of the things you mentioned would actually be transferred.

Nevertheless, I want to take the opportunity to ask some questions about the integrated cross-border law enforcement suggestion. We have before us a change to the act, which I think will allay some of the myths surrounding our national sovereignty issues. A lot of different people have said there are sovereignty concerns, and I want to give our representatives an opportunity to allay some of those myths, because I think there are steps in the bill that might do that. So I want to open this up to you so you can address those myths, please.

Justice or Public Safety—or whoever wants it.

[Stephen Bolton, Director, Border Law Enforcement Strategies Division, Public Safety Canada]

Thank you for the question. It is an interesting question actually, and it's one that we've discussed and thought about quite a bit. To start off with, when you look at integrated cross-border maritime law enforcement, it does work as a multiplier effect of sorts in terms of your resources at the border, in terms of increasing your coordination among law enforcement at the border. In general, what that does is it allows you to address cross-border criminality at the border more effectively than you were doing before. By doing that, in effect you are asserting your sovereignty, by dealing with threats and addressing issues of cross-border criminality at your border, protecting Canadians and protecting Canadian communities. So in that way, as a model it is quite effective.

The bill itself does take certain precautions to ensure and safeguard Canadian sovereignty, including enshrining in the legislation the fact that if you have a U.S. law enforcement officer working in Canada, that law enforcement officer would be working under the control of a Canadian law enforcement officer, that is, under the host country, with the laws of Canada being enforced and the rules and procedures and policies of Canadian law enforcement being followed. That in itself is a way of ensuring or asserting sovereignty by maximizing those resources.

I'll turn it to Michael.

[Michael Zigayer]

This legislation implements a treaty that we've signed with the Americans, and the treaty itself contains a recognition of the importance and the principle of the sovereignty of states. That is incorporated in the statement of principles found in the bill, under clause 368.

To follow up on something that Stephen said a moment ago, we are contributing with the Americans a certain number of resources at the border. Let's say we have four vessels; that's as much as we'd have in terms of our own law enforcement capability or resources. By partnering with the United States, putting a Mountie and a member of the U.S. Coast Guard together onboard one of those vessels, and then contributing another four vessels, we've effectively doubled the resources of both countries—and they're all able to patrol both sides of the border. So in that sense I would suggest that we're enhancing the protection of our sovereignty because we have more enforcement people along the border.

[Shelly Glover, Conservative, Saint Boniface, MB]

I agree with you. I happen to be a police officer on a leave of absence so I know how important security is. I appreciate that you've allayed those myths because, unfortunately, sometimes misinformation gets out there, so I appreciate that.

Hopefully, I will get another chance because I have some questions for our uniformed members later, but I appreciate the time restraints.

Thanks, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Brison, please.

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

Thank you, Mr. Chair.

I thank each of you for joining us today.

Mr. Kennedy, you've served as senior assistant deputy minister of Public Safety responsible for national security activities. Is that correct?

[Paul Kennedy]

That's correct. I did for about six and a half years.

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

And you spent five years as senior chief counsel to CSIS.