Thank you, Mr. Chair.
Thank you for having invited me to testify before the committee this afternoon.
I was born and raised in Ottawa, where my father worked as a public servant. It is always a pleasure to come back here.
First National is a prime mortgage lender that underwrites about $23 billion a year of residential and commercial mortgage loans. In addition to being Canada's largest non-bank mortgage lender, with 950 employees across the country, we are also publicly owned and traded on the Toronto Stock Exchange.
We use mortgage brokers to distribute our products, and CMHC securitization programs to raise the capital to fund these mortgages. We have employed leading-edge technology, together with competitive interest rates and a high level of service, to achieve our goals. We do not compete on credit quality. In fact, our credit quality meets or exceeds any lending institution in Canada. We estimate that we have provided about one million Canadians with the financing to enable them to achieve their dream of home ownership.
One of the cornerstones of our business model has been our relationship with the Canada Mortgage and Housing Corporation. CMHC was founded in 1945 to provide funds for housing for soldiers returning from the war. In 1954, CMHC introduced mortgage default insurance, in an effort to provide liquidity to Canadians for home ownership. In addition to CMHC, there are two private sector competitors to CMHC who now serve almost 50% of this market.
In 1987, CMHC introduced NHA MBS, National Housing Act mortgage-backed securities, and then in 2001, the CMB, the Canada mortgage bond program. These securitization programs have allowed pension funds, mutual funds, and other non deposit-taking institutions, both domestic and international, to provide mortgage funding to Canadian homeowners.
Prior to 1987, it was only the large deposit-taking institutions that could raise the large amounts of capital that was necessary to fund the mortgage market. The consumers' choice was quite restricted. The outcome has been to create a bigger playing field in Canada to give Canadians more choices in mortgage financing and to ensure robust competition among lenders to provide lower interest rates. CMHC has been an immense boon to Canadians seeking home ownership through its mortgage insurance and securitization programs.
The Minister of Finance has worked in tandem with CMHC to control and protect the Canadian housing market. Since 2008, pursuant to the credit crisis, the minister has introduced a number of changes to moderate consumer debt through mortgage lending. We have supported these changes.
In October 2016, the minister announced more changes that affect the mortgage industry. These changes included increasing the qualifying rate for five-year mortgages from the mortgage contract rate to the Bank of Canada rate. This change effectively reduces the amount of mortgage that a borrower seeking a five-year mortgage or longer-term mortgage can borrow. The rationale is to ensure that the borrower has the financial resources in the event of rising interest rates at renewal, and at the same time to temper some of the demand in the overheated markets.
While we are supportive of this change, it must be noted that this change only affects insured mortgages, which are less than 30% of the overall market. The remaining 70% of the market, which is uninsured, is not affected. As the average insured mortgage in Canada is $300,000, and mortgages in excess of $1 million cannot be insured, this change will reduce the affordability of housing for first-time homebuyers in the softer markets in the country—the Prairies, Quebec, and Atlantic Canada—and will have a minimal effect on the overheated markets in Vancouver and Toronto.
The most significant and structurally negative change announced in October was the elimination of the availability of mortgage insurance for borrowers who wish to refinance their mortgages. Canadians have always used the equity in their homes to borrow money efficiently, to fund home renovations, children's education, and other financial needs. The new rules significantly restrict the options that these borrowers have and put the clock back 30 years to 1987, when the only choice for these borrowers was to use the large domestic financial institutions. We view this as a retrogressive step, contrary to the broad public policy goal of promoting competitiveness and certainly contrary to CMHC's mandate of helping to house Canadians.
Subsequently, OSFI introduced changes to the capital requirements for mortgage insurers. These changes, effective January 1 of this year, require mortgage insurers to hold substantially more capital, and that's in the area of two to three times more, for a conventional mortgage relative to the capital required to be held by a large, domestic financial institution for exactly the same mortgage.
These changes, by essentially pricing out of the market those lenders who use mortgage insurance and securitization to fund their mortgages, will have the same negative effect on Canadian homeowners, as just discussed.
In summary, we would request that the minister and the superintendent reconsider their decisions to make mortgage refinances ineligible for mortgage insurance and to make no further changes to the rules governing the housing sector until the most recent changes have been absorbed by the marketplace and are fully understood.
I'd be delighted to take your questions.