The head of Canada Mortgage and Housing Corp. (CMHC) is calling on banks to reconsider offering mortgages to highly indebted households, saying excessive borrowing threatens the nation’s housing sector.
Chief Executive Officer Evan Siddall says the government-backed insurance provider has lost market share due to restrictions it has imposed on high-risk borrowers. Private insurers have moved in and picked up that business, weakening CMHC’s position and threatening the agency’s ability to protect the mortgage market in the event of a crisis.
The national mortgage insurance system should not be used to help people "buy homes with negative equity," says Siddall, who is stepping down from his position at the end of this year. But by offering 95% loan-to-value mortgages subject to a 4% capitalized insurance fee in the midst of an economic downturn, that’s what insurance providers are doing, says Siddall, a former Goldman Sachs banker who has run the country’s housing finance agency since 2014.
Canada’s real estate market has been on fire in recent months, fueled by ultra-low mortgage rates and a dearth of new listings. It’s a trend that won’t last, says Siddall, who forecasts that real estate prices will begin to fall in late 2020 after the government winds down its COVID-19 emergency response measures and unemployment starts to have a greater impact.
CMHC announced in June that it will narrow eligibility criteria to require higher credit scores and lower debt burdens for people to qualify for a mortgage. The move, which took effect on July 1, was intended to protect new home buyers from falling prices and reduce taxpayer risk to market corrections.
