Evidence of meeting #134 for Public Accounts in the 42nd Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cmhc.
A video is available from Parliament.
President and Chief Executive Officer, Canada Mortgage and Housing Corporation
I am not at liberty to share terms and conditions of the program with the public accounts committee, because that's within the purview of the Minister of Finance.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
But internally, you're using what you do know in order to create models to analyze the risk to the CMHC's bottom line?
President and Chief Executive Officer, Canada Mortgage and Housing Corporation
That's right.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
Okay, and those are based on the post-AG report to ensure that you don't potentially overcharge on premiums, and then you do—
President and Chief Executive Officer, Canada Mortgage and Housing Corporation
The AG's report pertains to our mortgage insurance business, sir, not to the shared equity mortgage program. That's a new program.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
It's a new program, but it does have an impact on the regular insurance programs that you provide, because there's risk involved there.
President and Chief Executive Officer, Canada Mortgage and Housing Corporation
That's right.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
So then—and this will be my last question—on the shared equity mortgages, do you know if the government will gain on the upside? If it puts 5% down on a used home, will the government gain the upside if the property gains in value? That would be a significant impact to the government's bottom line, but also, as the agent acting on behalf of the Crown, you'll be responsible for managing and knowing which mortgages and which properties the government has a stake in and is going to gain a return on.
President and Chief Executive Officer, Canada Mortgage and Housing Corporation
The government may suffer a loss on those. It would be a mistake to assume that house prices always increase, and this is a bias we want to make sure people aren't burdened with. The Government of Canada is incurring significant costs that first would have to be recovered from any possible gains before it would be enriched.
Conservative
President and Chief Executive Officer, Canada Mortgage and Housing Corporation
Indeed, they would include interest costs, our own operation costs. That's right.
Conservative
President and Chief Executive Officer, Canada Mortgage and Housing Corporation
That would be netted from the government's returns. It wouldn't be charged to the homeowner, if that's your question, sir.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
That is my question. Thank you for the clarity.
On the downside, potentially, the government could also lose on these equity stakes.
President and Chief Executive Officer, Canada Mortgage and Housing Corporation
Sure.
Conservative
Liberal
René Arseneault Liberal Madawaska—Restigouche, NB
Thank you, Mr. Chair.
How much time do I have left?
Liberal
René Arseneault Liberal Madawaska—Restigouche, NB
Great.
Welcome everyone. Thank you for being here.
I'd like to congratulate you on your new appointment, Mr. Ballantyne.
My colleagues have asked some excellent questions. Out of curiosity, I will address the issue of risk management, specifically paragraphs 36, 37 and 38 of the auditor's report.
I'm relieved to see that various scenarios have been simulated, including an oil shock and a large earthquake. Four variables were analyzed. According to paragraph 36, these variables are house prices, unemployment rates, gross domestic product growth rates and interest rates. Following this economic stress simulation, all results indicated that the corporation was “above the minimum threshold for all stress scenarios”.
On the other hand, paragraph 38 mentions that there is a weakness because no further stress tests have been conducted and that this could lead to latent vulnerabilities. I stress the word “latent”, which, by definition, means something unpredictable. It's sleeping somewhere and all of a sudden, it explodes.
Apart from the four variables in paragraph 36 I've just mentioned, are there any other variables that may have an impact on the corporation? My question is for the co-auditors.
Managing Partner, Ernst and Young LLP
Thank you for your question.
First, we wanted to list the most important variables that were tested by management, not all of them. The models are relatively complex. When conducting a stress test, management tries to find the most important variables, those that have an impact on capital. There are a multitude of variables. Of course, there is an infinite number of them, but the key thing is finding the most important variables
Liberal
René Arseneault Liberal Madawaska—Restigouche, NB
Do you agree that these four variables are the ones that can have the greatest impact on the role the corporation plays and the services it provides to Canadians?
Liberal
René Arseneault Liberal Madawaska—Restigouche, NB
I'm a lawyer by training. Excuse me for saying that.
