Canada Cuts Back On Mortgage Insurance Offerings To Cool Real Estate Market

Canada’s national housing agency will underwrite less mortgage insurance in 2014 amid fears that housing market is overheating.

The government-controlled Canada Mortgage and Housing Corporation (CMHC) said recently that the amount of insurance in force will decline to C$545 billion (US$497.15 billion) in 2014. The amount was C$557 billion (US$508.5 billion) in 2013, down from C$566 billion ($US516.75) in 2012.

Canadian house prices have risen steeply since the 2008 financial crisis. CMHC faces the difficult task of repaying lenders in case borrowers default.  

The number of units CMHC insures annually has fallen 67% from its peak in 2009. Two other private agencies underwriting mortgage insurance are Genworth Canada and Canada Guaranty, but both are still a way behind CMHC which boasts a 60% market share. The CMHC’s market share used to be 80% until a few years ago.

The decline in the amount of insurance in force is the second step within a month that the CMHC has taken to reduce risks.

CMHC stopped offering mortgage insurance to second home buyers, and also self-employed borrowers who fail to submit a third-party income validation.

The Canadian government has taken a slew of measures in the past five years to prevent people from taking on large mortgages. The maximum amortization period was reduced to 25 years from 40 years. Government-backed mortgage insurance is available only for homes with a purchase price of less than $1 million. It is mandatory for home buyers to make a minimum down payment of 5%, and in case the property is not occupied by the owner, the minimum down payment is 20%.

This article was republished with permission from Global Property Guide.

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