CMHC: talking privatization but no plans
Finance Minister Jim Flaherty’s latest thoughts on privatizing the CMHC this week generated a flurry of media interest, a partial denial by the feds and a litany of “no comments,” from real estate players.
“We can’t comment because there’s no real plan,” a spokesperson for the Canadian Real Estate Association said on Monday.
Citing an interview with Flaherty, the Globe and Mail said the finance minister would like to see the CMHC privatized within five to 10 years. Later Monday, Flaherty sent a subordinate to deny the time-frame set out in the article.
“Despite what the Globe and Mail said, there are no plans to make that change at this time,” Junior Finance Minister Ted Menzies was quoted by Reuters.
Denial or not, It’s obvious that Flaherty envisages change at the CMHC – which controls about 75% of the mortgage default insurance business in the country – even if he might not even be finance minister by the time that happens.
Just six months ago, Flaherty shared similar thoughts on the future of the crown corp. - minus the five to 10 year time frame – with the Financial Post.
“Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada,” he told the FP’s editorial board.
Besides the CMHC, two private companies – Genworth Financial and Canada Guaranty offer mortgage default insurance for property buyers. Residential home buyers must obtain mortgage insurance if they cannot make the 20 per cent deposit required by the banks.
Now to be clear, privatizing the CMHC probably means taking the government out of the mortgage default insurance business, since the crown corp. also runs other programs, including the Canada Mortgage Bond Program, in addition to social housing ventures. What isn’t clear are details about how Flaherty would do this, because he has yet to disclose any.
“Privatizing (parts of the CMHC) by itself does not necessarily mean there would be fewer mortgage products, or higher premiums,” said Denis Doucet, a Montreal-area regional director for Multi Prêts, which operates as Mortgage Alliance Co. of Canada Inc. outside of Quebec.
Genworth, the private insurer, for example, insures mortgages for a broader clientele of self-employed workers than the CMHC.
And Flaherty has yet to talk about eliminating government guarantees which back these insurance programs. Currently, CMHC’s insurance is 100 per cent backed by the government, while private sector mortgage insurance is backed by 90 per cent.