Canada Mortgage and Housing Corporation has taken the unusual step of publicly challenging its critics, defending its reputation and its business model as calls for change pile up.
On Monday, the Crown corporation sent the news media copies of letters that its vice-president had sent to three think tanks which recently published research reports critical of the extensive role that CMHC plays in the housing market and the risk that it creates for taxpayers.
All the hub bub comes on the heels of the Obama administration intoning last Friday that it believes the US should no longer play a major role in the country’s housing market, including a role that would mirror our CMHC. The choice to steer clear of a Canadian style system as a model for a stable American future, fans the flames lit by CMHC critics who say the agency’s role in our own market should be re-examined.
CMHC is the largest provider in Canada of default insurance on mortgages, which home buyers are legally required to have if their down payment is smaller than 20 per cent. Ottawa created CMHC in 1946 to house returning war veterans and its role in the housing market has steadily expanded in the decades since.
To the critics, CMHC’s vice president of policy and planning, Douglas Stewart argues that the Canadian model is cost effective and has provided the Canadian taxpayer with $12 billion over the last decade in profits and income taxes.
“Most importantly, the Canadian model withstood the test of the economic downturn, when housing markets in the U.S., United Kingdom, and Ireland failed,” Mr. Stewart wrote.
The letter also noted that CMHC already complies with the Office of Superintendent of Financial Institution regulations and does not require a formal review from Canada’s financial regulator.
Letters are reported to have been issued to David Madani at Capital Economics, Jane Londerville at the University of Guelph and Finn Poschmann, vice-president of research at the C.D. Howe Institute, who published papers about CMHC in November of last year as well as earlier this month.
Mr. Stewart’s letters and the decision to make them public is a departure for CMHC, which tends to shy from discussions about itself. “Simply put, CMHC felt it was important to have a discussion based on factual information,” spokesman Charles Sauriol said Monday.
CMHC’s critics aren’t impressed by the global recognition and admiration that the Canadian system, and the agency’s role within it, have received in the aftermath of the financial crisis. “Underwriting practices in Canada have been better than the U.S., and there’s no question we’ve been more stable than the U.S. has,” said Poschmann. “That said, that doesn’t mean there aren’t risks here.”
C.D. Howe Institutes’ study, What Governments Should Do In Mortgage Markets
CMHC’s rebuttal letter to the study.