CMHC and it's expansionary path

I have a CMHC mortgage, no problems so far, and I enjoy a low interest rate.

Yes, I think my down payment was 5%, maybe less, actually, but that was in 2006.

Not that I'm aware of, and it's only a ten year mortgage.

Canada's subprime mortgage headache is part of the Harper Legacy William Krehm

Unlike privatized US mortgage insurers Fannie Mae and Freddie Mac, Canada's CMHC is a crown corporation. The Harpers certainly wanted to copy-cat the neoliberal voodoo and introduce competition for mortgage insurance. And the NDP has pressured our stooges into not allowing big bank mergers so that they could gamble bigger and better alongside their Wall Street counterparts.

Sure but depending on where you live, that could run you up to $50,000 for a low end condominium.  That's going to take quite a while for the people who are shopping in that part of the market.  Meanwhile, if you're looking at a rising market, you might be paying a lot more for your home by time you finally qualify for a normal mortgage.

Perhaps it would make sense to save up for a bigger down payment now - an argument could be made that there is limited upside potential and lots of downside potential for the housing market.  I'd hate to gamble on that, though.  Twice, when I was buying homes, I waited because I thought that prices couldn't possibly get more expensive.  And twice I wound up paying more.  It really depends on your circumstances, like your rent, your age and how much leeway you have if interest rates rise.

Sandstone,

I know I've debated this issue twice already, once on Babble (somewhere) and once over at the Tyee.  As much as I like Murray Dobbin, in this case he's presented no real evidence to back up his alarmist opinion.  His article is based heavily on a letter from an investment banker.  I read the original letter and it appeared to be a case of someone trying to drum up business using fear-mongering.

The CMHC has been insuring mortgages for decades.  The debt is being securitized but that's neither here nor there.  CMHC has been buying the debt from the banks but that's really irrelevant because the CMHC is on the hook for the loans anyway. The question is what is the quality of that debt - ie, how likely is it to be repaid?  Dobbin offers no evidence that a significant portion of these loans are going to go bad.  Specifically, I haven't seen any statistics that show the value of mortgages with 0% down, the value of mortgages where there is negative equity or even the current default rate.  Dobbin is sounding the alarm but offers no good evidence for doing so.

If interest rates suddenly shoot up, there will definitely be problems but nobody can predict rates.  Rates are dependent on inflation and I don't see it exploding in the forseeable future.

There may be a problem but I don't have the information or expertise to determine whether there is or not.  Apparently, neither does Murray Dobbin.

Clearly you don't live in Vancouver, where only the very rich, newly inheriting, or those who bought 30 years ago have a chance in hell of saving a proper down payment.

cmhc is unregulated.... this is a cause for concern and another reason (to my way of thinking anyway) why we are hearing next to nothing about this...  this is the same position the usa found itself in and for that matter the world still finds itself in with regard to the derivative markets.... it is a recipe for disaster and just waiting for the perfect storm.. politicians are in bed with the financial and real estate industry for allowing this to happen and it will end badly with taxpayers on the hook for it...

and in connected news.....

http://www.cbc.ca/fp/story/2009/11/16/2229660.html

You're right, I could never afford to own a home in Vancouver.  But when I do own a place again, I won't get into another situation where my payments are drastically higher than rent which is pretty much guaranteed to happen when you put only a negligible amount down.  My experience with homeowning was not a happy one.  Have you ever heard of anyone who bought in 1995, then sold in 2005 for $25,000 less?  My only saving grace was a ludicrously generous expropriation payment from the Ministry of Highways.  Without that, I'd still be digging my way out of the hole.  Next time, I'll be much, much more savvy.

I think Harper and the newz media will con Canadians into believing everything is fine with the overall stagnant economy and ballooninng housing bubble, and that the toxic assets they took off the hands of the banks won't come back to bite Canadians on our collective asses whenever ideologically-driven meltdown part duh happens. It's quite a balancing act with conning Canadians into handing ReformaTories the phony majority they didn't receive from voters just over one year ago.

reefermadness - thanks for your thoughtful replies... i agree, it is not at a point of panic, but only concern... here is more to my concern... if very little money has been put on a downpayment for a home, and interest rates move up some the incentive to stay in the home as very little of ones money has actually been put in this home.... here is a more conrete example... someone buys a house for 2-300,000 in 2007 for example - interest rates are low, but come 2011, interest rates changes make the payments higher and real estate decides to take a break from its burning pace here on the westcoast.. many will be thinking of declaring bankruptcy as the value of their house might put them underwater... all speculative on the downside, i will readily admit, but real estate is not some magic act where it always goes up and never comes down... the problem as i see it is a loose lending dynamic mixed with a high valuation real estate market all in combination with low interest rates.... any change in any of these 3 important details in the other direction and the shit will hit the fan... being a speculative person, i say it is not if, but only a matter of when... might have to wait 2-5 years or longer to see this happening, but i think it is a given... the one other point i haven't included in this is the employment situation and the graphs that were in one of these articles that pointed out that the income of people has not kept up with the rise in real estate values... this also spells trouble with a capital T... so, no, i am not in panic mode, just a note of concern as i think it is very warrented....

If he did say that, I'm pretty sure he's dead wrong.

And the issue in the US was not just the super low down payments. [And what 'securitization' did by the way, was not put mortgage financing at risk. It made sure probelms there would spread throuh the financial system like wild fire.]

The paper ready for match condition in the US was the low down payments, plus the corrupt and downright illegal widespread practice of faking consumer qualification for the mortgages.

Low down payments by themselves does lead to foreclosures when bubbles burst.... but as a localized phenomena, and not as a cascading snowball.

ETA: that practice of faking assessments and consumer qualifications was so pervasive that my retired parents went from having a chunk of equity in their home, to being way underwater, without me or my siblings realizing.

I have no idea myself. But professor of economics at Ottawa U.Michel Chossudovsky says Harper lied to Canadians just weeks after the election when he said that $75 billion handed over the Canada's chartered banks is not a bailout when it clearly is. Ottawa is financing its own indebtedness. The Harpers' bailout and crazy George's TARP bailout for Wall St., although differing in procedure, serve the same purpose to bailout banks from their own gambling debts.

Former Wall St. economist Michael Hudson and others sounded the alarm bells years ago. Hudson described deregulated Wall St. investment banks as being parasitic and detrimental to the real economy way back in 2003. And I remember reading of concerns on the left here in Canada about free markets in housing, unregulated financial capitalism and marauding international capital in Lorne Nystrom's book, "Just Making Change: the 100 percent, honest to goodness truth about our user unfriendly financial system and how to escape it ISBN: 0968662404", way back in the late 90's.

It was a false economy overall lurching from one bubble to another. Eventually there has to be someone behind the scenes acting to prick the over-inflated bubble. That wizard behind the curtain was the once arrogant and now disgraced Alan Greenspan.

Fidel, I've read Chossudovsky's article a number of times.  Either he's so much smarter than me I can't understand him or he's blowing smoke.  Given the lack of reaction from anyone else on this, I have to say the latter.

Here's what happened.  CMHC was authorized to purchase up to $75 billion in mortgages from the banks.  This is not a handout.  It's a swap of assets.  CMHC becomes the holder of those mortgages.  This isn't even a bailout because CMHC was already on the hook for the mortgages.   If they went into default because these mortgages were already insured by CMHC.  So why did the government do this?  To take the debt off the books of the banks so that they could keep on lending.

The only way this becomes a problem is if some of the loans go into default.  But if they do, CMHC was already on the hook anyway!

As KenS has already pointed out, securitization was not the problem in the US.  Bad lending practises were the problem.  What securitization did was allow the banks to hide the problem.  The banks each thought they were OK because of the shell game they were playing with derivatives.  Everyone thought that if their loans went bad, the derivatives they were using as insurance would save them.  In fact, what happened was that the entire system was operating on a knife's edge and when the the US real estate turned, that was enough to cause a chain reaction to pull everyone down.  Except us.

As for whether Canada should have tried to nationalize the banks, that's an interesting concept.  I'm not sure $200 billion would have covered it.  The market cap on Royal Bank alone is about $80 billion and you typically have to pay a premium if you're trying a takeover.  And this probably would have been badly received by many of our trading partners.

The prurpose in swapping them is to free up capital so the banks do not have to shrink what they lend, as regulations would require. It was not to unload bad assets onto the government. We have a much more highly regulated environment, and this would be best characterized as a minor nibble at the edges of regulation- at a time when there were fears the market would freeze up from blowback of the US troubles, and that suddenly it would be a lot harder for people to get mortgages.

And it wasn't a significant increase in risk by the CMHC- just adding what them is not a big chunk to what they already have.

The whole global financial system could go kaboom so bad that it washeds over us the same as the reast of the world. And viz that possibility you could argue that ANY addition of some risk into the edifice is crazy. But from Chossodofsky, to Dobbin, to you and others: you are saying MUCH more thatn that.

This move by the government IS greasing the wheels for the financial institutions. But thats just business as usual for the system we live in- where our availability of credit is conveniently linked to the health of the financial institutions. If we want the former, we halp the latter. Over and over.

But what happened is most definitely NOT, and not even remotely in the same league as the extraordinory scope of the ineterelated and wild west bailouts of the US.

And we're not sitting on the edge of a precipice. If the whole world goes into complete financial meltdown, we go over the cliff too. But we are not going to get there via some home grown foolishness.

There is a lot of misinformation in this thread. For one, CMHC no longer provides mortagages at all. They haven't for at least a decade perhaps more. Their only involvement in the mortgage industry is through mortgage insurance and securatization.

As has been correctly pointed out, if you have less than a 20% down payment in Canada you have to purchase mortgage insurance by law. This is not the case in the US. For a very brief period of less than a year and a half in 2006-2008, the gov't allowed 100% financing with 0 down payment and a 40 year term. This was stopped last October for obvious reasons and now you have to have at least a 5% down payment and a max 35 yr term. CMHC is not the only insurance provider, but it is the largest.

The other huge diff. b/w what happened in the US and what didn't and won't happen here is that people were given huge mortgage without even the requirement of showing proof of employment. That would not happen here. The most common scenario here is bank lenders annoyed b/c CMHC's mortgage insurance dept. won't approve insurance for a deal that the bank is willing to approve. They have much stricter practices for determining client ability to repay than the banks do, let alone the US.

As was also correctly pointed out, the government provided CMHC money to purchases mortgages from the banks. This was to give the banks great access to capital for lending during the crisis and provided no additional risk to CMHC - as it was already on the hook for the large majority of these mortgages in the case of default.

The other thing I will say from experience is that most mortgage holders with CMHC insurance assume that the insurance covers them in the case of default.

And CMHC is most definitely regulated - in fact its very existence also acts as a regulation on the mortgage industry. <

Do some research. CMHC makes a profit - put back into general fed. revenues from mortgage insurance, but also from CMHC International. If developping countries want to set up a mortgage system, their top choice for guidance is Canada.

My bad.  I missed the date.  OTOH the basic points have not changed, and the articles you cite are about individuals possibly getting in trouble, not systemic issues.

Shovel-Ready in Canada Pundits are praising the financial health of the United States' northern neighbor-but should they?

By Maurice Dufour

Shovel ready! Note: Duncan Cameron's resume includes having worked for the Dept. of Finance. I think that's in Ottawa.

Is there a rule against posting sources who support the exact same point of view?  Duncan Cameron's resume

Would they hire you, KenS?

It is not a 'tradition' at CMHC, it is required by law in Canada.  The Bank Act has forbidden mortgage lenders, mainly banks, from lending the full value of high ratio mortgages since the late 19th century.  That meant very, very few Canadians could save up anything close to the mandated 20-25% of value required to buy a home. 

CMHC was created as a social policy intended to promote home ownership by guarnateeing the loan between 75/80% and 95/100% of value, and they charge a hefty premium for same.  The premium is not determoined by 'circumstances', it is determined by the amount you wish to borrow.  Not surprsingly, the higher the ratio, the higher the risk and hence the higher the premium.  Having the bank 'charge a higher interest rate' could not happen in high ratios because the bank simply cannot make the loan, period.

btqw, it should fall on your lenders shoulders to explain the cost of your CMHC loan and all asscoiated fees.

  Along with this social policy came quailification requirements that apply to every applicant for a high ratio loan- and this is where we differ from the US system.  EVERY CMHC borrower must have jumped through CMHC hoops, the banks collect the info but every borrower must qualify.......a critical step and one that has greatly limited foreclosures as compared to America. Every borrower had the capacity to repay when they got the loan.

The Cons did not announce 'earlier this year' they would buy back mortgages from the bank, it was over a year ago when the global credit crunch was running hard.  Basnks did not trust each other to lend money, every offering was suspect and paralysis.  It was very difficult to get a mortgage on any terms from Canadian lenders in November 2008 because they had no captial and no access to capital.  Ottawa stepped in and bought some $50 billion worth of performing mortgages from the banks, on the understanding that the $50 billion would be used to generate new, CMHC approved mortgages.  There was little risk to the taxpayer then or now in these portfolios, they were not then and are not now at risk any more than usual, given that there are always some foreclosures even in good times.  Every borrower on every mortgage qualified when they got that mortgage.

So, I'd go further and suggest that not only are all CMHC mortgages not subprime, unless you commit a very well orchestrated fraud at time of financing, none of them were subprime.  In the US, many were bogus from day one with the active connivance of banks and mortage brokers.

The subprimes in Canada are actually low ratio mortgages, where the bank does not need CMHC involvement/approval and can approve anything it likes on their own.   They did make loans that were shaky there, but of course had the advanatge of down payments in the 20% plus range.  That in itself protects the banks, and by their annual profits they have weathered the storm handily so far.

fellowtraveller says "There was little risk to the taxpayer then or now in these portfolios, they were not then and are not now at risk any more than usual, given that there are always some foreclosures even in good times.  Every borrower on every mortgage qualified when they got that mortgage." you are entitled to this opinion, but anyone paying attention knows that this is not the same enviroment today as existed even 10 years ago with regard to prices or real estate, interest rates, or employment levels... the reason the banks mortgage portfolio has not increased in any marked way in the past 2 years has to do with the present gov't offering cmhc as a backstop for these mortgages.. obviously the banks like the arrangement... a change in any of the 3 areas i have pointed out - real estate prices, interest rate levels, or employment levels can make this whole zone look different then it does at present, and interestingly some are now talking about a bubble in canadian real estate prices...  thanks fopr your optimistic viewpoint..

Your comments that follow from there do not address at all what you quoted and then said "you are entitled to your opinion".

You avoided the point that what CMHC did last year was no different and no riskier than what it has always done. Its a truism that no one and no organization is immune from risk. But if you think that the current climate puts CMHC at risk, and therefore Canadian taxpayers, then what they have always done and are mandated to do is what is risky. Do you think they should fold their tent?

And do you have any evidence- even anecdotal- that in Canada there is any appreciable amount of borrowers not actually being quailfied?

One Wall Street banker told Michael Hudson that the jackals came to the realization that poor people are not just bad credit risks, but also that that poor people are willing to take on and pay userous interest rates on mortgages and refinancing. Lights went on in the eyes of the bankster crooks as happened similarly with the S&L scandal years before which ended up costing US taxpayers $30 billion a year for 30 years to bailout the mafia who took advantage of the Reaganauts inside information on new rules for federally guaranteed bank deposits.

Banksters were never under the illusion that poor people would not default on their mortgages after criminal interest rates kicked-in. The dregulated banking and finance and insurance sectors actually desired that they would default knowing full well that US and international taxpayers would be bailing them out for their bad decisions and gambling debts. It was the ultimate con. 

Bingo! You win the hand-crafted extruded polypropelene insulated outhouse seat.

The banksters' game is to own both the assets and the debt.

As an aside, I'd like to know if the banks actually made good on that understanding.

Considering that Canadian housing prices are on the rise and that most markets are brisk, I would assume that CMHC insured mortgages are a prime source of growth for banks. Banks are increasing capital reserves and tightening other lending practices but CMHC sets the terms and conditions of lending, not the banks.

I'm guessing that CMHC generates funds from bond issues to buy back mortgages from the banks and that there are covenants in place to restrict the use of those funds. I'm also guessing that CMHC does NOTHING for free in the insurance and securitisation part of their mandate. They will generate a healthy profit, as usual.

"The combo of the Bank Act and national mortgage qualification critieria has had some good and bad effects on us as a society.  Few would argue that home ownership is not desirable, and without CMHC or something like it that goal would be utterly and permanently out of reach for nearly all of us.  On the bank side, the lack of exposure for the banks - they have little risk- creates a stable environment that is serving us well in this economic crisis, but serves us less well in terms of competititveness in better times."

I guess I'm one of the few who doesn't buy into the propaganda of Realwhores and Banksters.

The obsession with homoanership has done great damage in places like Vancouver. People who have no business being landlords, load up on debt to buy delipidated houses with moldy basement suites. Instead of proper housing, poor people have to live in these dark, dank suites and get abused buy amateur slumlords who don't know or care to know about tenants rights. Home ownership means abusing poor people.

instead of relying on basement dungeons for affordable housing, the CMHC should be facilitating the building of non-market housing. But no, that's not in the interests of Banksters and Realwhores.

Also we have rental apartment tenants giving up relatively affordable rents to buy the little pieces of hell known as LEAKY CONDOS. Tenants never have to pay to replace a roof, but will be driven into bankruptcy as homoaners. Just wait, as soon as the music stops, you will hear endless tragic stories.

And we can clearly see what the relentless drive for homoanship has done in places like the US. If you can't see it, you are blind. The question is, when do we reach the breaking point in Canada (especially Vancouver)?

Can we somehow connect this growth in "income" investment opportunity in the market to the larger pension funds?  The increasing degree of market dependency seems to be politically engendered...from lyin' Brian's time in office. Although all market watchers say more outlets for capital savings had to be found in that period anyway.

And isn't the movement into investing on life insurance policies taken out on employees, stateside,  just an extension of this ongoing expansion of investment vehicles in an atmosphere of "anything goes"? That is, they are not just created to raise capital for a particular need (i.e.real estate). And aren't bubbles guaranteed by such creations? (And that is an amazing summary, sandstone...and even in a sharp economic downturn the amount held does not waiver much).

Just to support basement dweller's observation, homeownership may be appropriate for some, such as families in a stable and fairly immobile job situation, it is totally innappropriate for others, such as households who have to relocate fairly frequently. Our tax system builds in huge arm-twists to get people to become homeowners, such as the fact that capital gains on sale of principal residence(ie your home if you own it and live there) are not taxable. If you do get relocated a lot, then this tax push may or may not make up for the costs of buying in the first place, but the main beneficiaries are lawyers and Real Estate Agents. Meanwhile, renters get no parallel benefit, and the $billions of reduced revenue from this tax break alone provide an excuse for cutting even more services to the poor.

We shouldn't treat this problem of pushing homeownership too hard/human devastation it causes to households who a sucked into overextending themselves, as a new or unique problem. For example, in the '70s there was a Federal program called the Assisted Home Ownership Program(AHOP) which reduced mortgage requirements for an initial period. The assumption was that earnings would go up, and this worked for lots of households, but the early '80s had some stormy weather for many folk and many of the poorer ones who had taken a shot at the AHOP program found themselves dropping their keys off at the local CMHC office or bank when mortgage renewal came around.

The 'degree of regulation ' is critical in explaining the differences between the US and Canada. 

Your use of the past tense in describing the problem in the USA is not quite right.  The lack of oversight or national standards reguiation in qualifying for residential mortages has not changed there, lenders can do whatever they more or less please and there is no reason to believe that what happened in the last couple po years won't happen again.   Ineveitably, greed will again overcome common sense and with no national regulatory regime history will repeat itself there.

Hopefully we will not change our course.

You are still overlooking the key element of Canadian controls on mortgage lending practices, the complete lack of control in the US that led to widespread fraud, and the centrality of this in the US housing bubble.

Yes, what regulation in Canada there is of derivavtives is pretty murky. Though it is worth noting that without a federal regulator in Canada and the balkanization with the provinces being in charge, that we have had an effective regulatory climate; while in the US the feds have all the tools centralized, and look what they have. Obviously, at the very least, having the big hammer at the federal level is not the determining factor of regulatory effectiveness.

The difference is in political will. And as weak and compromised as is that political will to maintain and 'adapt-up' the regulatory climate in Canada- and hamprered by a lack of ultimate federal jurisdiction- it obviously makes a BIG difference that we did not and do not have an elite consensus that favours rampant de-regulation as in the US.

CMHC has been the keystone tool in enforcing that prospective borrowers are rigorously qualified. The frame the standards for more than just the CMHC insured loans.

Maybe derivatives are just plain a bad idea. But if you are talking about what degree of concern is warranted, it does matter that in Canada you just don't have any sytematic fudging of loan qualifications. That was the practice in the US that turned the edifice into a house of cards where its 'when is it going to fall?' not 'is this prone to falling?'

And when it comes down to, it neither derivatives or CMHCs practices are really material to the prospects you raise. You and others think that there is significant potential for a big a bubble break in property values as happened in the US. If that happens the wreckage is widespread and reaches everywhere regardless of the financial instruments used. And as far as I can tell- it makes no difference in the end whether the taxpayer through CMHC has directly guaranteed a lot of those loans. The taxpayer in the US is shelling regardless of who owned those obligations.

Plus the point made earlier. Previous property value bubble bursts in the US and Canada have been limited to regions, and even there with pretty minimal foreclosure backwashing in Canada. What made this bubble burst so different- and only in the US- is the lack of regulation and consequent systemic fraud.

Thats a pretty compelling causal link. And since we do not have those kind of practices in Canada, why unless it is part of a complete global financial meltdown that washes over everything regardless... why would you expect a massive and across the board bubble burst here?

yet another article from the national post and diane francis in oct of this year...

http://network.nationalpost.com/np/blogs/francis/archive/2009/10/21/cmhc...

Ottawa has been creating a housing bubble in Canada with taxpayer money which is why residential real estate prices rise in defiance of high unemployment and recession.
Ottawa's low interest rate policy and crown agency Canada Mortgage and Housing Corporation's dramatic increase in mortgage backstopping, for people who put only 5% down, have pushed upward activity and prices.
Some, such as Post reader and accountant, Derek Bruce, worry that the Tories are allowing CMHC to become like Freddie and Fannie south of the border, a rogue financial institution the size of one of our big five commercial banks.
In March, CMHC was allowed to insure up to C$600 billion in mortgages, up from C$450 billion the year before, said a CMHC spokesman today.
“Last year alone, CHMC did 919,780 deals worth a staggering C$148 billion, or about twice what it had planned. To accommodate that, the feds have raised its allowable insured mortgage limit to C$600 billion, or about double what it was two years ago,” wrote author, former MP Garth Turner.

Uh oh
This is a looming problem which flies in the face of Ottawa’s smugness about its superior regulatory regime and Canadian banking conservatism. For starters, CMHC is as big as a bank and not regulated.
It's a mortgage slush fund which distorts the market. It allows banks to lend recklessly without consequences and pushes up the price of housing for everyone. It rewards those willing to speculate with leverage and discriminates against those who are prudent. It's unfair because the Canadian banks charge the same mortgage interest rates to those who put only 5% down with CMHC backing as those with skin in the game and large down payments.
Thus Canada's real estate markets are hitting highs in the middle of the worst recession since the Great Depression.
“Since CMHC is insuring so many mortgages, the banks have no incentive to test the credit worthiness of home purchasers.  Then the mortgages can be neatly packed into MBS securities and have a CMHC 100% Canadian guarantee on the back of the investments thus insuring end-investors these papers are insured from loss,” wrote Bruce.

Distortions
Some may argue this is simply another stimulus strategy, but this is canceled out by the fact that it encourages bad and unfair behavior and banking practices. It also has serious monetary/currency implications because air will eventually have to be let out of the bubble by imposing higher interest rates. This will mean a higher Canadian dollar.
The question is why should taxpayers be involved in this when it shoots them collectively in the foot? Why shouldn’t banks have skin in the game? And home buyers? If not, why shouldn’t they share the upside with taxpayers?
This amounts to a subsidy to our highly profitable commercial banks, real estate developers and speculators.
The greater good would be served if housing prices fell to where a fair and unfettered market dictate, thus squeezing out real estate inflation and creating sound ownership opportunities.

Aussie medicine
A similar bubble was attacked by Australia where interest rates jumped to 3.25% (from 0.5%) and damage to exporters, as a result of a higher than otherwise currency value, has resulted.
Clearly, CMHC must be reined in and regulated properly.

Diane Francis doesn't have a lot of credibility around here.  CMHC IS a regulator.

Francis complains about anything that doesn't shovel money into rich peoples pockets.  That's her job.

There is a small pony in the excrement pile.  The low interest rates the current economic system requires does inflate house prices, and I fully expect some people will be in trouble when things get better.  However, those problems are nowhere near the recent US experience.

Canada Mortgage and Housing Corporation (CMHC) is seeking to raise $2.33 billion in a bond sale, The Wall Street Journal reports. The bonds will be sold in two tranches, including $1.39 billion of 10-year fixed-rate Canada mortgage bonds and $945 million of five-year floating-rate notes.

The 10-year bonds will be sold at a spread of 43 basis points. The five-year notes will be sold at a spread of 15 basis points.

article is from nov 19th 2009..

Canada's (Sub-Prime) Mortgage Market - Causing Concern for the Bank of Canada?

Posted: November 19, 2009, 3:36 AM by AJ Sull

http://network.nationalpost.com/np/blogs/fpmagazinedaily/archive/2009/11...

They are less regulatory, than market/environment shaping. More determining than most regulatory agencies.

As far as what happens in practice, I think my statement still stands.

thanks for the article jrootham...

first off, some of the data in the article is not up to date, but overall it is a pretty informative article... i would like to quote a few passages from the article..

"Canada’s smaller subprime market share and fewer households with high LTV ratios, however, suggest that the country is less likely to see the rapid increase in defaults that helped trigger the bust in U.S. housing prices. So far the incoming data suggest that the Canadian housing market is likely to experience a housing market slowdown rather than a bust."

the article only was able to show LTV rates in canada up to 2006.. all the expansion has happened in the past 2 years.. i am curious to know what the LTV rates are on the past 2 years...  also, it is an interesting conclusion they come to - likely to experience a slowdown rather then a bust.' i am sure that is heart warming to some!!

from the article "Why Was the Subprime Market in Canada Smaller?"...the simplest story is that Canada was “lucky” to be a late adopter of U.S. innovations rather than an innovator in mortgage finance. While the subprime share of the Canadian market was small, it was growing rapidly prior to the onset of the U.S. subprime crisis. In response to the U.S. crisis, some subprime lenders exited the Canadian market due to difficulties in securing funding. In addition, the Canadian government moved in July 2008 to tighten the standards for mortgage insurance required for high LTV loans originated by federally regulated financial institutions. This further limited the ability of Canadian banks to directly offer subprime-type products to borrowers."

note that the continued rise or stability in housing prices in 2007/8/9 here in canada has coincided with the onset of the us subprime crisis..  the canadian gov't moved in july 2008 to tighten  standards - (35 year instead of 40 year mortgages?) and we still don't know what the LTV rates are for canada in these same years where i have pointed out earlier the incredible rise in the amount of mortgages that the cmhc has overseen...

personally i don't have huge confidence from reading the article that we are immune from what the usa has gone thru in the mortgage industry...  he states in this article "There are also several institutional details that played a role. The Canadian market lacks a counterpart to Freddie Mac and Fannie Mae, both of which played a significant role in the growth of securitization in the U.S."

while it is true freddie mac and fannie mae were set up differently then cmhc, the cmhc operates in a similar manner and is playing a role very similar to that played by fannie and freddie... it remains to be seen how this works out, but i am not convinced it will be all that different...

simlifying again : there are those here who think canada is different then the usa in all of this, but personally i see too many similarities, even if we are behind in what we are doing compared to our more aggressive counterparts in the us....

The growth in CMHC mortgage backed securities that you pointed out and keep featuring, is of all types of mortgages. There is no data showing how much if it has low equity ratios- and no reason to expect that it has higher than is in the market in general.

So there is no reason to expect that the Canadian LTV ratio has changed since 2007 with the growth in mortgage backed securities since then. If anything, you can expect it to have gone down with the elimination of 40 year terms and 0% down payments [though only a marginal effect].

And no one has argued we are immune. What is being argued is that there is no grounds to expect, or think likely, a meltdown driven primarily by internal Canadian housing market structure and practices.... as those practices and structure clearly drove the severe US housing and finance bust.

thanks guys...

compare this data to all previous years.

2007 -85,672,903,553.22

2008 -$144,972,174,910.62

2009 to date - $114,363,023,308.09

ken - it raises question marks for me.. that is all.. no conclusion one way or the other at this point... time will tell and it is too early to tell at this point... as usual we don't have enough information to make an informed comment and i have been trying to get more specifics with the help of you and others here that are interested and willing to share articles connected with this issue... all the best -

Perhaps not evidence that there are more shaky mortages but I do recall an indicator of some concern.  Apparently, with increased unemployment and record low interest rates Canadians in the past year have managed to substantially increase the degree to which their homes are leveraged.  That is, the amount of household debt is now a greater percentage of household wealth for the average Canadian.  This could be quite problematic if the trend holds until interest rates increase.

i wonder if this is connected to any of those numbers?

Less than 1% of $1.9-billion social-housing fund spent so far

Hardest-hit Canadians still waiting for support

Bill Curry

Ottawa — From Monday's Globe and Mail Published on Monday, Nov. 30, 2009 12:15AM EST

http://www.theglobeandmail.com/news/politics/less-than-1-of-19-billion-s...