Evidence of meeting #208 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was payment.
A video is available from Parliament.
Senior Vice President, Policy, Research and Public Affairs, Canada Mortgage and Housing Corporation
If they don't have a down payment, they won't be able to qualify.
It could help in terms of their debt service coverage ratio and so forth, but they need to have that 5% down payment.
Conservative
Pierre Poilievre Conservative Carleton, ON
They can't use it to cover the down-payment portion that is necessary to obtain mortgage insurance.
Senior Vice President, Policy, Research and Public Affairs, Canada Mortgage and Housing Corporation
That's correct.
Director General, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
That's correct.
Conservative
Pierre Poilievre Conservative Carleton, ON
Can the reduced monthly payments help them meet the stress test?
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
As I said, the insured mortgage portion can be reduced because of the incentive without increasing the down payment. The stress test would apply, for example, on that reduced insured mortgage size.
Recall that the budget announced criteria for the incentive itself, not just the $120,000 income limit but the mortgage loan to income limit. The idea there is that the program parameters for the incentive targets the program to those most in need of support for housing affordability while maintaining the prudent lending standards, including the insured mortgage rules.
Conservative
Pierre Poilievre Conservative Carleton, ON
What again is the maximum loan-to-value ratio that one must meet to qualify for this incentive?
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
The loan-to-value ratio would be the down payment requirements for an insured mortgage. The minimum requirement is 5%, and that applies to homes priced under $500,000. For homes above $500,000 that go up to the $1 million price limit in the insured space, there's 10% on the portion above. The minimum down payment varies across the space from 5% to 7.5%.
Conservative
Pierre Poilievre Conservative Carleton, ON
You said earlier that the maximum value of a house purchased under this plan would be about $565,000.
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
The house price, not the loans value. Yes.
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
Yes.
Conservative
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
Sorry, I thought you were asking about the maximum loan-to-value ratio for the borrower under the insured mortgages.
Conservative
Pierre Poilievre Conservative Carleton, ON
Oh, yes, under the insured...but I'm talking for this program.
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
Under the program, as I said before, the maximum house price would be a function of a borrower's income and down payment. For example, with someone who puts the minimum down payment of 5% and who is at the income limit of $120,000, the house price limit would be around $505,000.
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
It depends on the terms and conditions, specifications, for what the maximum down payment is. For example, most insured buyers who are first-time homebuyers have high-ratio mortgages, so loan-to-value ratio is above 80%. In that case, someone would be able to have a house price of $565,000—around there—if they put down, for example, 15%.
Conservative
Pierre Poilievre Conservative Carleton, ON
Right, so no one could expect to buy a house of more than $565,000 by using this incentive.
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
Those are the house price ranges applicable to the incentive.
As I said before, the insured market space—
Conservative
Pierre Poilievre Conservative Carleton, ON
For the incentive, I mean. I'm only referring to the incentive at this point.
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
Yes.
However, because the incentive applies, there's a requirement that you must have an insured mortgage. This is targeting first-time homebuyers, who typically have insured mortgages.
As I said before, the house price ranges in which they buy tend to be more entry-level housing. The market-wide house prices are not really reflective of the house prices in this particular space. The house price ranges we just discussed cover a large majority of insured buyers, based on our data.
Conservative
Pierre Poilievre Conservative Carleton, ON
I have one final question about the overall direction of government policy with respect to CMHC. It has been the objective of the federal government for roughly the last 10 years—maybe a little shorter, nine years—to de-risk CMHC, de-risk the taxpayer and put the risk in the hands of the banks who profit from the mortgages, thereby matching profit with risk, a basic market principle. CMHC has been diligent in trying to achieve that goal. Does it not seem like it puts us at cross-purposes to increase CMHC's risk and the amount of skin the Canadian taxpayer has in the property game?
Director, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance
As was stated before, the program balances the need to target housing affordability with maintaining prudent lending standards. As Michel alluded to, some of the program parameters are intended to contain the risks borne by CMHC and by taxpayers. Further information on that will be available in the terms and conditions.
Conservative
Pierre Poilievre Conservative Carleton, ON
How big is the insured mortgage book of CMHC right now, Mr. LeDrew?