Why Did CMHC Cap Mortgage Guarantees? [List]


CMHC put a what on a who now?

CMHC Logo Somewhat surprisingly it was announced today that Canada Mortgage and Housing Corporation, or CMHC as it is more affectionately known, has placed a cap of $350 million per lending institution per month on Government of Canada insured mortgage-backed securities.

That's a mouthful! What does it mean?

Well, it means a few things:

  1. The housing markets in Canada* are stronger than the government and the media expected. (*Note, I didn't say "Canadian Housing Market" because that doesn't exist. Housing is local.)
  2. Low interest rates have made it relatively affordable to buy a home just about everywhere. (I said just about while staring directly at Vancouver and some parts of the GTA)
  3. Some lenders have been securitizing* everything they can to offload all of their risks onto Canadian taxpayers (Thanks for that, big banks) and some lenders, who don't take deposits, need securitization in order to raise money from investors that they can lend. (*Securitization is the process of selling a block of debt as a bundle to investors who value it for it's asset-backed nature and relatively low risk)
  4. The Finance Department doesn't want Canadians to get in over our heads with too much debt at all-time low interest rates, because they know* that inflation is a possibility down the road which will lead to higher interest rates and payment shock. (*by "know", I mean "guess")
  5. The government thinks you're too stupid to make responsible borrowing decisions all by yourself, so they're intervening. Again.
  6. The government thinks that the banks are too greedy for market share and is mad that they've been offering such low interest rates, so they're intervening. Again.

Yeah, but that last sub-heading made it sound like you were going to explain what it means.

Ok, this is what it means to you:

  1. Higher interest rates.
  2. Possibly less competition in the mortgage marketplace. (See #1)
  3. Possibly more differentiation in rates between monoline lenders (only available through brokers) and banks. Costs for monolines might be relatively lower as a result of this. To be determined.

Questions? Feel free to give us a shout.

Here's a list of news articles about this CMHC change you might find interesting:

President of First Foundation Residential Mortgages and First Foundation Insurance. Live in Edmonton but cheer for the Riders. I have lots of kids. Follow me on Twitter @gordmccallum

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