CMHC and it's expansionary path

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

Is it CMHC that does the 5% down payment program?  I can't remember. 

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

But don't they charge you an ungodly sum for that privilege?

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

CMHC has traditionally provided mortgage insurance for high ratio mortgages.  A high ratio mortgage is one where you have a down payment of less than 20%.  In Canada, most first time buyers will be insured through CMHC. 

CMHC charges somewhere between 0.5% and 2.75% of the value of the mortgage depending on the circumstances.  It isn't cheap but it's probably cheaper than the alternative - having the banks charge an ungodly interest rate. When I purchased my condo, I didn't even realize that I was paying the fee until later.  It gets added in with all of the other fees and my lawyer glossed over it.

For a while CMHC was offering 0% down mortgage insurance but they stopped when the US meltdown became apparent.

Earlier this year, Harper announced CMHC would be buying mortgages from the banks to clean up the banks' balances sheets and allow them to continue lending.  In turn, the CMHC has been "securitizing" the loans and selling them to investors.  I suspect that CMHC is one of those crown corporations Harper would like to privatize.

Dobbin's contention that CMHC is creating a Canadian housing bubble is poorly founded.  He asserts that all CMHC-backed mortgages are "sub-prime", which is a falsehood.

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.

You're missing another alternative -- saving up for a proper down payment.

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.

most people are not interested in the financial world... it is only when  your money looks like it could disappear, do folks pay attention... this is unfortunate, but understandable to a point... if the road starts getting more potholes in it, folks start thinking of why road repairs are needed... in the financial market, it isn't until things start getting bumpy that the issue over regulations become an issue of great relevance... one big lesson around the market fear in 2008 and into feb 2009 was how aigs involvement in the derivatives market, specifically with credit default swaps essentially put the us gov't on the hook for an incredible amount of taxpayer money.... the same potential exists here in canada as now cmhc is involved in something similar thanks to the conservative gov't thinking that cmhc, an ''unregulated'' crown corp, can operate as the lender of last resort  issuing mortgages and assuming the risk connected to mortgages that the canadian banks are often responsible for holding... this is the reason for the huge growth in cmhc in the past 3 years...

now, back to the article at the top that i was hoping to get some feedback on... here are some quotes to get grounded in..

"...the Harper Conservatives directed the CMHC to change the mortgage rules to effectively make the Canadian government the biggest sub-prime lender in the world. What’s almost as alarming as this reckless policy is that no one in the financial media is talking about it, even though everyone knows the facts..."

"The facts are that over 90 per cent of existing mortgages in Canada are “securitized” -- that’s the practice of pooling mortgages (or other assets) and then issuing new securities backed by the pool -- MBSs, or Mortgage Backed Securities. That’s what happened with the sub-prime mortgages in the U.S. which (because the whole pool was so diversified) received triple A ratings by the rating agencies. Losses around the world amounted to hundred of billions of dollars.

Credit is still tight in the U.S. because no private investor has the stomach for such risky MBSs. That’s because those losses were private and not back-stopped by any government. In Canada, mortgages have been securitized for years. The Canadian-issued securitizations are called National Housing Act, Mortgage-Backed Securities. Unlike the failed U.S. pools, says Lepoidevin, “In order to find buyers for securitized mortgage pools, the Government of Canada has put guarantees on them” by directing CMHC to guarantee all Canadian mortgages."

"The banks themselves have taken on virtually no new risk. According to CMHC numbers in the two years from the beginning of 2007 to January 2009 Canadian banks increased their total mortgage credit outstanding by only 0.01 per cent.  Fully 90.5 per cent of all growth in total Canadian mortgage credit outstanding since 2007 has been accounted for by Mortgage Backed Securities. Of course, the banks have no interest in saying no if you have qualified for a securitized CMHC loan -- because they bear no risk if you default. 

If that sounds like sub-prime mortgages, it should. Sub prime is any loan below prime. If a bank refuses you a loan, and CMHC gives you one, the loan is sub-prime. As Lepoidevin says in his warning letter, “Every single U.S. lender specializing in sub-prime has gone bankrupt. The largest sub-prime lender in the world is now the Canadian government.”

This is the ticking time bomb Prime Minister Stephen Harper has tossed at the Canadian taxpayer. Why? So that he can maintain the fiction that he is a good economic manager and win a majority in the next election.

The problem is no opposition political party wants to expose the looming disaster and risk being responsible for a dramatic fall in house prices."

these are all comments from the author of the link at the top of this thread... as i see it, this issue is of major relevance and i am surprised that it isn't being discussed as it will be definitely affecting all of us when the shoe does drop, and it will...

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.

Pretty much agree with all you say here reefer.

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.

ReeferMadness

thanks for your comments...it is true cmhc has been insuring mortgages for decades, but if you look at the astronomical growth from 2007 i think you will agree that the changes implimented by the harper gov't are the main reason for this... it is called downloading the risk onto a crown corp... this is where i think this issue merits close attention... in the usa, the gov't was forced to resolve the mess aig was involved in with the derivatives market...

as for the quality of the debt, lets consider for the moment the idea of allowing for no down payment and a 40 year mortgage... i think it is obvious to most that when a lending institution or federal gov't (thru its crown corp) is alright with these types of lending practices and mortgage arrangements, while on the other hand the prices of real estate have continued to heat up, that it is safe to say the obvious reason the banks are happy to lend is they now have cmhc as a backstop for any risk that they would have otherwise been responsible for...  i appreciate your comments, but i think you negating some dynamics that are bound to come back and bite canucks in the ass in a big way... as for interest rates having any impact, that is also an important element that assumes low interest rates indefinitely, which doesn't seem realistic to me either...

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...

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

http://www.theglobeandmail.com/report-on-business/article727831.ece [18]

and in connected news.....

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

CMHC is a crown corporation whereas Fannie and Freddie, US equivalents to CMHC,  were privatized so many years ago. There was a plan by Ottawa to introduce deregulated competition for mortgage insurance in Canada, but it went sour early on, and that plan is now on the backburner since meltdown began in the US. The Canadian government has borrowed $200 billion to bailout/recapitalize Bay Street and crown corporations loaning money to the private sector since about two weeks after the last federal election. The Harpers wanted desperately to put a grab on phony majority government in order to push through the bailout on the quiet. But our rightwing newz media have cooperated fully in keeping news of this massive bailout hushed and on the QT. The Harpers' bailout is actually less transparent and they are being less accountable to the pubic than crazy George Bush and now Obama have been with the just the $700 billion dollar taxpayer funded bailout of Wall Street. And it seems now that there are US Republicans demanding a stop to their own previous government's TARP bailout citing a lack of results, but the previously opposed Liberal Democrats are now inisisting on maintaining Bush's TARP plan and revolving door access to Washington by Wall Street fascists. Their two old line parties are just as crooked in the US as our own two phonies are in Canada.

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.

Sandstone, thanks for the further reading.  I think there is cause for concern but not for panic.  What's missing from all of these articles is any substantive, fact-based, numerical comparison between our situation and that in the US before it collapsed.

Without that, I think that the comparisons to the US situation amount to hyperbole.  In the US, there were zero interest mortgages, adjustable rate mortgages and interest only mortgages.  The real estate market was being treated like a casino.  In Canada, there were zero rate mortgages but only for a relatively short timeframe. As long as interest rates don't spike suddenly, we could still be OK.

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.

Are these toxic assets?  Where's your proof?  So far, I've seen none.

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....

Murray Dobbin says 90% of mortgages in Canada are "securitized."  This is the pooling of mortgages or other assets and issuing new securities backed by the pool. ie Mortgage Backed Securities. It's at the heart of what went awry with the sub-prime mortgage fiasco in the US and resulting in billions of dollars worth of losses for the deregulated banking sector around the western world. It's a bubble and someone named Carney at the Bank of Canada will eventually have to deflate it with higher interest rates.

Duncan Cameron wrote in Budget 2009 and the Bay Street bailout:

 $200 billion! That's actually worth more per capita than crazy George's $700 billion USD TARP bailout of Wall St. banksters, and for which some Republicans are now insisting that Liberal Democrats honour their election campaign promises to scrap crazy-crazy George's TARP for a lack of results. These Liberal Democrats in the US are now insisting that Republicans now opposing their own party's bailout are wrong, and that crazy George II's plan to fund socialism for Wall Street was the correct path to recovering from the neoliberal voodoo all along.

I agree with Duncan Cameron, London School of Economics economist Willem Buiter and others who now say that nationalising banks and to transform banking into a public utility for the public good would be cheaper and more effective than bailing out the deregulated, ideologically-driven mess in our North American banking system today.

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.

Here is a Toronto Star report on the issue.  Note the difference in how much of the market is subprime, the default rates, and the level of insurance.-

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.

jrootham - the article you have posted is 2 and a half years old... the party has really been in over drive for about the same period since the article was posted....  here is an article from 3 days ago..

Mortgage brokers should prepare borrowers for higher interest rates: experts

http://www.google.com/hostednews/canadianpress/article/ALeqM5jw8P7KcM9U8... [31]

http://media.www.brockpress.com/media/storage/paper384/news/2009/11/24/B... [32]

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.

So if this was merely a swap of assets, as you claim, then what purpose does swapping serve? If the mortgages are not at risk of debtors defaulting, then why were the banks so quick to unload them onto the taxpayers? If these mortgages all end up being repaid with interest, then the bailout was a totally unnecessary "market transaction" as the Harpers referred to the circular bailout financing.

 The feds paid $60 billion in totally unnecessary interest payments servicing a totally unnecessary national debt racked-up by Ottawa when federal debt soared from $18 billion in 1974 to $588 billion by 1997. That was but one example of bailing out banks with allowing them to load up with federal debt with no money down of their own. Why would the feds borrow from private banks at market interest rates when it could borrow from its own bank at less than one percent interest and even zero if not for the cost of administration?

The feds have been bailing out our increasingly deregulated banks since the 1980's. This isn't the first Bay Street bailout.

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.

And following up on that:

This is massively misrepresentative. The main thing that has happened in Canada in that period of time is to abolish or blurr the distinctions between types of financial institutions which had been one of the 'pillars' of regulation. Its better characterized as a different idea of regulating than calling it 'deregulation'.

In fact, while it wasn't intentional, the fact we did not have specialized financial institutions was one of the insulations against the crisis in the US. The specialized institutions in the US were the biggest chasers of profits through the dizzying array of ways to play little margins- and the first weak link to blow, that then could not be stopped from mushrooming through the whole system.

Had we given Canadian insitutions the deregulation they screamed they were going to die without- then we would have been seeing bailouts.

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.

KenS & Ghislaine:

What do you make of Dobbin & Chossudovksy?  Perhaps you could argue that Dobbin didn't know any better but Chossudovsky is a professor of economics.  I get really frustrated when I see stuff like this because it serves to provide easy ammunition to neoconservatives.  They can point to articles like ones these two write as reasons to ignore the "looney left".

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.

Is Chossudovsky an economist?

Doesn't matter what his credentials are, he's different.

I didn't want to get into it because he's going to be defended to the death by some people here. But it is the same thing when he wrote reams of stuff about the former Yugoslavia. He takes subjects where there is plenty of room for credible criticism. But thats not good enough, he mines tons of material and concocts grand 'proofs' of grand conspiracies- quoting absolute reams of sources... but if you take a look at the originals, he butchers the material forcing it into his tin hats.

I had a friend who was the same. Brilliant, and able to plow his way through tons of references [though it is easier to be quick when you're only looking for disjointed facts to cherry pick for putting in your tin foil hats]. For all that work, the outcome is garbage. In a social utility sense, taste of a brilliant mind.

Dobbin is by no means in the same category, but I think he is prone to occassionaly stepping off the deep end a little easily. But he isn't trying to snow anyone. And in this case, he's just out of his element.

I don't think that Chossudovsky is a problem, just noise and distraction.

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.

 But we were talking about Dobbin, who wrote the article.

Not to mention that Finance hires people besides economists.

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

Right on!

Would they hire you, KenS?

From that two-year-old Star link: "And while the U.S. subprime meltdown is ugly, it pales in comparison with past financial debacles, said Jeffrey Rubin, chief economist at CIBC World Markets."

Since relieved of his post by CIBC for having the audacity to write "Your World is About to get a Whole lot Smaller", did Jeff have the end of oil in mind when he wrote that, or just peak oil? It was only little more than a year before he published. :)

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.

Thanks, f t. Needed that.

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..

Yeah, we'll have to depend on realtors advising buyers that they will be up Shit Creek if they cannot expect to retain their jobs or meet their commitments when the rates go up.  They will faithfully do that, won't they?  :)

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?

The problem in the US was not only that people would no longer be able to carry their mortgages if they lost their job.

On a truly massive scale Americans "qualified" for mortgages they could not possibly sustain, that they could only survive [not sustain] by refinancing at a higher loan level as their home appreciated. [And the appraisals themselves were faudulently goosed to facilitate that.]

There are bubbles and there are bubbles. We are not immune here, but we have nothing like the bubble conditions that existed in the US.

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. 

Without CMHC, nonurban centers in Canada would not have access to mortgage funds. Chartered banks and private lenders will not assume risk in one-horse resource towns and non-urban backwaters of this great land.

CMHC generates a significant profit for govenment from its mortgage insurance and mortgage securitisation efforts. While there are instances of default, CMHC is large enough to ride out the disparate consequences.

The provocations of fearmongering 'journalists' is designed to hit home to the largest number of readers in order to interact those readers with revenue generating content. These assholes couldn't care less whether they are factual, just whether they can generate reader 'hits with their provocations.

The easiest method to generate interest is fearmongering about individuals' homes -most individuals' prime security in an uncertain world. It is predatory 'news making'.

The 'news' weasels concentrate on CMHC's profitable mortgage endevours without ever mentioning the social housing obligations CMHC is mandated to fulfill. CMHC is THE undisputed leader in social and sustainable housing expertise. This is CMHC's strength but the profit-generation mortgage and securitisation aspect is under constant threat from greed-driven private interests who can't stand a return on investment to the taxpayers of the nation.

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

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

And Obama has maintained Wall Street's revolving door access to Washington. As long as foxes are in charge of the hen house, things will only deteriorate further.

The only positive outlook for Canada is that we still have what our imperial controller nation, the USA, needs in the form of energy and raw materials. It would be really hard for the feds to mismanage our resource and energy exporting economy any worse than they already have. We just can't expect them to do anything progressive as far as our previous Kyoto obligations to all living things and poverty reduction, or investing in modern infrastructure or greening the economy in general are concerned.

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

KenS ..... forseen ..... snoozing
ken you make a few statements that i would like to respond to... first off, i do not think cmhc should fold it's tent.. i think that is a pretty silly thing to say, but perhaps i don't understand your motive for suggesting such...

ken says..."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." end of ken quote..

"In 2008, Canadian home prices started to dip as affordability became the worst on record in many cities. CMHC admits that it was ordered to approve as many high risk borrowers as possible to prop up the housing market and keep credit flowing. 42% of all high risk applications were approved, a 33% increase over 2007."

"While many banks were flogging that it was a great time to buy a home, not one of them increased their mortgage holdings. Between the beginning of 2007 and 2009 Canadian Banks increased their total mortgage credit oustanding listed on their books by only 0.01% (see CMHC chart below). One has to question if real estate was such a great investment, why didn't they want to touch it?"

i encourage you to read this article, along with graphs and informative comments.

http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html [59]

one graph here

http://4.bp.blogspot.com/_0YOsyi5WbLY/Stul-ZVBtbI/AAAAAAAAAO4/0Sll8K0hW2... [60]

another article here

http://americacanada.blogspot.com/2009/10/canadian-charts-on-housing.htm... [61]

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.

sandstone, thanks for confirming I do have a right to an opinion, but my comment about qualifying for CMHC mortages was not an opinion, it is a fact.  If you have a high ratio mortgage, you must qualify through standard and fairly stringent criteria.  Note that there is a second player in the game now, GE Capital, who have even more stringent criteria for their equally expensive insurance.  

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.

To clarify, the federal govt and CMHC did act a bit differently last year.  They eleinated both the zero down payment options and 40 year amortizations for loans in response to falling markets.  Those two were not that unusual in that prpograms to control access to money, both expanding and contracting, are done all the time over the history of the crown corp.

What was different was the intervention of the feds in buying $50 billion of performing mortgages to inject cash into the system, cash that was almost unattainable at any price at the time.  The govt will almost certainly make the same kind of profit the banks were going to make from the same mortgages.  At the same time, the govt was driving down interest rates to make borrowing easier.

To answer a question from somebody, did the banks do what was expected of them after that, last year?   Yes and no.  They were reluctant to pass on the great rates, and were slow to lend the $50 billion to consumers.  There were runours of some behind-closed-doors asskicking to pressure them to do what was intended- lend the money to homebuyers. But they did, and within a few weeks they are back to fighting over business, as usual.  Mortgages today are cheap and easy to get, wthin the usual credit restraints of CMHC.

"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)?

fellowtraveller quote "sandstone, thanks for confirming I do have a right to an opinion, but my comment about qualifying for CMHC mortages was not an opinion, it is a fact. " no doubt their were some 'facts' in your post, but i was refering to the opinions, which i still maintain you are entitled to! i guess we could get bogged down in a little word game, but having been on the internet for a good 10 years i know how easily it is for 'internet' conversations to be taken any number of ways, so i try to be kind, while working towards not making assumptions about what others are saying... most folks talk with a mix of opinion and fact...

back to the conversation.... perhaps the risk to canadian taxpayers is in the huge growth in mbs - mortgage backed securities - that cmhc is responsible for... to quote from cmhc website ""For many years, investing in mortgages was limited to investors with large financial resources. Now, thanks to Mortgage-backed Securities (MBS), the investment is accessible to all Canadians. MBS investments guarantee a timely payment to the investor, and provide more money through mortgage markets to help Canadians purchase a home.""

if you look at the growth in this investment product, you will note the hugh ''expansion'' ( a word i used at the beginning of this thread) in the amounts being packaged via this non regulated ''derivative'' format..  essentially if anything goes wrong with any of this, the canadian taxpayer is on the hook for it, thanks to the fact this is not being monitored in any regulatory manner as i understand it.. let me give you some numbers on this... mbs were introduced in 1987( don't think too hard about what was going on in the financial markets during that particular year) and have gone on an amazing trajactory...

total mbs for:

1987 -  $456,103,938.17..

1988 -  $773,187,552.37

1989 - $1,939,920,245.24

1990 - $2,102,644,809.58

1991 - $3,187,404,499.02

1992 - $5,959,419,219.49

1993 - $6,579,821,541.24

1994 - $3,719,673,067.01

1995 - $1,557,252,819.43

1996 - $1,722,701,047.37

1997 - $6,948,969,696.26

1998 - $9,075,660,693.05

1999 -$12,853,778,237.46

2000 -$11,013,867,855.64

2001 - $8,906,429,112.61

2002 -$22,643,674,837.53

2003 -$32,702,162,429.44

2004 -$37,713,498,784.14

2005 -$46,001,515,493.69

2006 -$58,446,930,419.30$ 

2007 -85,672,903,553.22

2008 -$144,972,174,910.62

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

what one immediately notices is that from about 2002 we have seen a huge jump in the amount of mortgages being packaged for investment as mbs, but in particular 2008 and 2009 stand out for the hugh increase in amounts..

as i understand it, if someone is going to invest in mbs and get a certain return on their money, they need to assume responsibility for the risk connected to it... at present their is no risk to any of this as it has been guarenteed by the gov't of canada... essentially as i understand it the real estate boom, and the profit connected to this that the private banks make via interest payments and etc off all this has no risk to these industries, but only to the canadian taxpayer... correct me if i am wrong on this, but i think most folks would agree their is quite an increase amounts of mbs outstanding with the risk being held by canuck taxpayers....

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).

Lot of questions, and big questions.

Short answer- I don't think derivatives guarantee bubbles. I think it probably comes down to the degree of regulation. That the problem in the US was that after a while of no one checking, the self dealing, corruption, and 'dont ask' gets to be so toxic that its inevtiable the house of cards will fall.

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.

I think you've mashed together too many things here.

The mbs would only be partially composed of CMHC backed loans. And even those- CMHC is not absorbing all the risk. When a mortgage does not perform- everyone involved loses money, the bank that made it as well as the insurer. And on derivatives- investors are at risk even for the perception of not fully performing assets that back the security. So its not at all accuate to say that CMHC is doing all the backstopping, and therefore that taxpayers pay the bill if it all goes south.

Besides- something is being left out here. When the financial system goes sour the way you are talking about here, whether or not CMHC or some crown agency is the contractural insurer... if it all blows up, we're all on the hook, just like in the US... no matter what the existing formal and regulatory relationships were or were not.

And thats not only to rescue the bankers asses, or to amorphously 'save the economy'. The train left the station long ago when we 'got' a financial system so throughly insinuated into every crevice of the social fabric. When it comes time a rescue is required, even those of us with few or no assets, no pension from an employer, etc, are going to be hurt directly by the meltdown. In other words, the tentacles of the financial system reach so far that we're also going to be hurt in the immediate or short term by the vanishing of some institution, let alone how we'll be hurt by the ensuing general economic meltdown.

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.

Ken s-  you are probably correct about me mashing together too many things... however i think the dynamics going on at present are unusual and warrent closer attention, especially by those in positions of authority who could have some say over these matters... i don't believe that their is enough proper oversight on this huge expansion in the mbs that chmc is responsible for... to quote from another source

"Exchange-traded derivatives are regulated in Canada through securities regulatory authorities only in the provinces of British Columbia, Alberta, Manitoba, Ontario, and Quebec. Regulation in this area has suffered from a lack of attention and coordinated effort. Manitoba and Ontario have specific, though outdated, legislation focused on commodities and futures contracts; British Columbia and Alberta address exchange-traded derivatives through their securities acts; and Quebec has recently passed a new Derivatives Act and is working on a draft of the corresponding regulation. The inconsistency in treatment of exchange-traded derivatives arises from a historical difference of views as to whether or not derivatives are “securities” or should be treated as such. It is also compounded by the demands of a quickly evolving market for new derivative products. Consequently, Canada has three different regulatory approaches among five provinces.

We believe that there needs to be a strong interrelationship between the derivatives markets and the cash markets in securities legislation.

We recommend that the regulation of exchange-traded derivatives be prescribed in securities legislation.

We conclude that the Canadian Securities Commission would bring significant improvement to the current fragmented approach to the derivatives market."

http://www.expertpanel.ca/eng/reports/final-report/improving.html

i think it is obvious, canada is waiting for an accident to happen before this area grows up... i see one in the making at present with 3 points i have outlined previously - easy availability of credit, low interest rates, and an overvalued real estate market..neither canadian incomes or the unemployment situation add up to a continuation towards the sky with valuations... i base this on the idea that people can only afford so much, specifically incomes have not kept pace with housing prices... 

another point i want to make is if you look at the banks porfolio on mortgages and the growth they have experienced in the past 2 years in comparion with chmc, it is almost none existant... chmc seems to be responsible for all the available money thanks to these mortgage backed securities that are not being regulated...

although this is from a study done in the usa after the collapse of real estate prices, i think it is worth reading for anyone here in canada especially anyone having some influence on setting policy in this area..

"In a Peabody Award [72] winning program, NPR [73] correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. Further, this pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with the MBS and CDO, which were assigned safe ratings [74] by the credit rating agencies [75]. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable." 

http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932009 [76]

while this is a story originating out of the usa, here in canada a similar dynamic is at work with chmc as i see it..

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?

ken s,  at this point i think we are going around in circles... if i can simplify your perspective is this : things are different in canada, while mine is this : examined a bit closer they aren't that different....

i point out the outstanding growth over the past 2 years in mbs with data from chmcs website

2008 -$144,972,174,910.62

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

these are 10X what they were in the 90's and into early 2000. 2001...

i see this expansion as a problem as any rise in incomes do not match the rise in real estate prices...

i see low interest rates helping to maintain this present situation.

i see lower investment standards ( unregulated derivatives - mbs), or more risky investments ( my view - real estate) as creating a situation where the tax payer will be on the hook for any change in all of this... i think it is unacceptable and that responsibility for risk needs to be held by those same folks that want to invest in speculative areas, whether derivatives, or real estate... i do not believe it is the responsibility of taxpayers to assume responsibility for this... this is my final comment on this... thanks for the conversation!

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 Bonds: CMBs are as safe as Government of Canada bonds

If you are a fixed income investor, you may want to consider Canada Mortgage Bonds (CMBs) as an alternative to Government of Canada bonds.

CMBs yield slightly more than Government of Canada bonds. And they are absolutely safe. Since the principal and interest for CMBs are guaranteed by the Government of Canada, the bonds carry an AAA/AA1 credit rating. This is the highest rating of any issuer in Canada.

The Canada Mortgage Bond program is the Canada Mortgage and Housing Corporation's housing finance initiative. The CMHC's aim is to lower mortgage costs by providing the Canadian mortgage market with an alternative source of financing that is competitive.

CMBs are issued via Canada Housing Trust, a special purpose trust created for this purpose. The trust uses the proceeds of the bond sales to purchase residential mortgages from approved sellers.

CMBs enable both institutional investors and individuals to invest in Canadian residential mortgages through these high-quality, easily tradable and guaranteed bonds. These bonds are also available to international investors.

CMBs were initially launched in June, 2001. New issues come into the market from time to time. However, if you are interested in these bonds you can purchase them at any time in the secondary market through your broker. Similarly, if you need to sell them before maturity, you can do so in the secondary market.

Like most other bonds, CMBs are fixed-interest coupon bonds. Interest payments are made twice a year over the term of the bond, with repayment of principal on the specified maturity date. These bonds are fully eligible for registered plans such as RRSPs and RIEs.

You can buy CMBs in denominations of $1,000 (or multiples thereof). They can be of any term, although new issues entering the market usually are for a five-year term.

There are of course other fixed income investments that provide higher yields. But safety, marginally higher yields compared to Government of Canada bonds and liquidity make these bonds suitable for conservative fixed income investors.

Chuck Chakrapani is Editor of Money Digest and Chairman of the Investors Association of Canada.

http://findarticles.com/p/articles/mi_m0JQR/is_5_17/ai_86042874/

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..

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

i am  not a fan of diane francis fwiw, but i thought the article shed more light on this issue... chmc is not a regulator... it is a crown corporation...

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...

I know CMHC had regulatory powers with respect to co-ops.  I suspect they have powers like that with respect to other institutions.

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

Canada Mortgage and Housing Corporation (CMHC), regulates the Canadian mortgage market.

the manner in which they sell mbs in very large quantities is not regulated.... everyone in the investment community preaches of their 'safety' but that is not the same as having  the osfi oversee the large changes in volumes of mortgages being approved for example, or the manner in which they are raising money to do it... oh it is all 'legal', but their is no regulatory body keeping an eye on them in the way the osfi would with the banks...

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

US view on at happened differently.  Short version, better regulation in Canada, it's not changed.

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....

one of the articles cited in the previous article is from april 2007..

Comparing the Canadian
and U.S. subprime and
alternative mortgage
markets.
Why the U.S. subprime fallout is a
U.S.-only phenomenon
April 10, 2007

http://files.newswire.ca/40/MASubprime.pdf

i would be curious to see a more recent article with stats as i continue to point out - 2008 and 2009 have been hugely exceptional in terms of growth with the cmhc...

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.

Exactly.

This thread has been circulating around this point from the beginning.  Dobbin, Francis and others have been pounding on this theme either to grind their own political axes or simply to create controversy to sell their writing.  The comparisons to the US have amounted to hyperbole because our lending practises have never equalled what was going on down there.

Note for future credibility assessment.

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

The rapid increase of securitizing mortgages is significant.

But you are trying to tie this to there being more shaky mortgages. There's no evidence of that. I can't even think of any evidence that its likley.

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 -

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

Mortgage credit exceeds incomes in Canada. Time to burst the bubble, but when? Phony-majority dictatorial powers would come in handy for them about now before strangling what life is left in the Canadian economy.

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.

But thats not big bust material. That leads to in market terms [not human pain terms] pretty limited and regionalized waves of fore closures... such as happened a number of times in the US over the last 30 years [especially in the West]. Those just don't cascade like the big bust they just had, and still are in.

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...

Unrelated. This is just another instance of timulus money being super slow coming out. And its additional money for CMHCs budget.

And it doesn't get capital for playing the mortgage backed securities from the government.

No one can foresee the future, so long as everything goes as expected, everything is fine, it is when economic trouble hits that things get tough. without a doubt CMHC fills a need, but when things go wrong, as in forclosure and shortfall, that benign government helper turns into a monster that has no pity or conscience.

Thousands of people have their lives ruined by a corporation that deceived them into contracting withem by concealing what thier policies would be in the event of foreclosure. I started a website to help the people who are being pursued by CMHC. You may find it interesting

www.cmhc-class-action.com

thanks

Dandyrough, what did you think would happen when you went into foreclosure?

I read your website, and I'm still not sure what your specific concerns are. There is a CMHC website where you can get information on mortgage insurance, and I'm sure they'd send more info if you asked.

I have a CMHC mortgage, one of the best things I ever did. Cheap and affordable.