WHY CMHC SHOULD NOT INCREASE PREMIUMS FOR THOSE WHO MOST NEED THEM

 

When you purchase your home and shop for your mortgage you will require mortgage insurance if your down payment is less than twenty percent of the purchase price.

Generally, this mortgage insurance is provided by the crown corporation, CMHC (Canada Mortgage and Housing Corporation) and is a lump sum which is added to your mortgage payment. As an example, if you purchase a home for $400,000 and put 5% down CMHC will charge you $11,970.

CMHC has been around for many years and its primary purpose, post WWII, was to help make home ownership for returning War Vets more affordable by insuring mortgages with small down payments in order to encourage the banks to make mortgage loans with little collateral. In order to do this the government guarantees 100% of the loans. So, for example, if you default on a mortgage for $400,000 and the bank takes your home and is able to sell it for only $370,000, CMHC reimburses the remaining $30,000 (plus any principal and interest the banks lost on the default).

Effective June 1, 2015, CMHC announced that it will be raising the cost of mortgage insurance for those who have less than a 10% down payment by 15%. In other words that $11,970 becomes $13,765.50.

Although most pundits expect Canada’s real estate market to have a soft landing, including government economists, the government is clearly worried that in the event of a serious market deflation, the CMHC is over exposed to risk. This, of course, means that we, the taxpayers, are over exposed to risk since we are, essentially, part owners of every crown corporation.

CMHC is looking at several ways to check risk exposure but have decided at this point to raise the mortgage insurance premiums for everyone who has less than a 10% down payment. Now, it stands to reason that no one with a 5% mortgage down payment is going to pause in their pursuit of a home because they will be charged an extra $1795.50, especially since it is rolled into the mortgage and not coming out of their pockets at time of purchase, so I find myself wondering just what problem this solves.

Granted, raising rates will put more money into the bank account of CMHC but in the event of a serious real estate crash, it will be a drop in the bucket and, more importantly, as a manner of reducing CMHC’s risk in the face of household debt levels  it is both contradictory and ineffective.

If the government is concerned with household debt why add to it by increasing rates?

A far more effective and fair way to reduce risk is to change the rules under which CMHC operates.

Although unknown to most home buyers, CMHC is not the only entity which offers mortgage insurance. There are a few private companies who offer the product. However, the government has seen fit to operate CMHC in a monopolistic fashion by ensuring the loans it ensures are 100% covered while only ensuring 90% of the loan for private insurers. Because of this these private companies  are forced to charge more for their products making them less attractive to home buyers. It also makes CMHC the mortgage insurer of choice for the banks since it reduces  the bank's risk to none. In 2014 the 5 big banks held 4,654,846 residential mortgages in Canada with only 13,587 or 0.29% in arrears. Presently and historically Canadians pay their mortgages and we enjoy extraordinarily low foreclosure rates in our mortgages.

What the government should do is to create a level playing field. Private mortgage insurance companies cannot effectively compete when the government makes itself a price fixing monopoly. I believe that the government should insure these private companies at the full 100% it affords CMHC or, better yet, reduce CMHC’s guarantee to the same 90% coverage it provides for private policies and expect the banks to share in the risks since they are seeing the returns.  Royal Bank, TD Bank, Scotiabank, Bank of Montreal and CIBC earned a profit of $31.7 billion in 2014 up from $29.2 billion in 2013. Reducing the government’s CMHC guarantee to 90% will not satisfy the bank’s need for surety in their drive for profits but I don't think it unreasonable to expect the banks to take on some of the risks of these mortgages since they are reaping the rewards.

Opening the mortgage insurance business up to fair competition would spread the risk. This would reduce CMHC’s exposure by giving private companies a larger market share, thereby reducing the number of policies CMHC holds.  As well, it would encourage competition in the fees that are charged for insurance: a benefit to consumers.  I agree that CMHC needs to address their over exposure in the mortgage insurance market but I don't agree that it should be on the backs of those most in need of help in their pursuit of home ownership.

6 NEW MAJOR DEVELOPMENTS COMING TO TORONTO

 

There are six major projects which are planned for Toronto some already underway and some planned for the near future. These projects will alter the appearance of several Toronto landscapes and provide new life to a couple of neglected areas of the city. Happily some of the units to be built will include both low income and rental space.

Regent Park Revitalization { Parliament to River / Gerrard to Queen }

Anyone who drives from the east end along Queen or Gerrard streets knows that Regent Park is being torn down. In its place is an exciting revitalization plan. The redevelopment is 69 acres and combines low income housing with market rate units, a far better solution than Regent Park ever was.

Many of the condos will include commercial space and office space.  Already completed is the Regent Park Aquatic Centre, a six-acre park with playground, squash pad, off leash area, community gardens, bake oven, greenhouse and walkways. The project will also house the 2.8-acre Regent Park Athletic Grounds. This is a five phase project in its third phase.

Daniels Waterfront – City of Arts { Lower Jarvis at Queen's Quay - East Bayfront }

To be located at lower Jarvis and Queen’s Quay this redevelopment is a 2.8 acre site once housing the Guvernment and Koolhaus Entertainment Complex. There will be over 900 suites in two new condo towers as well as two office towers which will contain commercial space and retail. Both George Brown and OCAD are considering expanding to these spaces. The extremely enjoyable Sugar Beach will also be extended.

Honest Ed’s { Bloor and Bathurst }

At Bloor and Bathurst a site of 4.4 acres will house over 1000 rental units plus retail space with a focus on small retail. There will be 40 or so buildings on the site with plans to save some of the charming Victorian houses on Markham Street. The developer, Westbank Properties, will be submitting their development application this fall.

The Well { Spadina and Wellington }

At Spadina and Wellington Street West, taking up the space occupied by The Globe and Mail and a car dealership, this 7.7 acre site will include roughly 1.1 million square feet of condos and townhomes as well as 1.1 million square feet of office space and 600 million square feet of retail space, open air retail and restaurants.

West Donlands { Parliament to Don River / King to Railway }

From Parliament Street to the Don River and King Street to the Rail corridor, West Donlands will encompass 80 acres. 6,000 residential units and 23 acres of parkland including 243 affordable residential rental units in three buildings. There will be two large market value developments. Currently Urban Capital is working on the Four phase River City project which will include 1100 condos and townhomes.

As many people know, the Pan Am/Para Games will take place this year and part of this new community will house 10,000 athletes and officials. After the games 805 condos will be built with 5% being affordable ownership units. Commercial and Retail space will also be included as well as a new YMCA facility and George Brown College student residence.

Already completed are playgrounds, a splash pad, athletic field, open lawns, a marsh, tables, benches, a barbecue, a fireplace, bike paths, a boardwalk and an off-leash dog area.

Much of this will be completed prior to the opening of the Pan Am games this year.

Downsview { From Jane to Allen Road / Finch South }

Between Jane Street and Bathurst Street to the west and east, and Finch Avenue and Highway 401 to the north and south, Downsview development will be 572 acres in total of which 294 acres is to remain as park space. The area will have five neighbourhoods:  The Stanley Greene Neighbourhood, The William Baker Neighbourhood, The Sheppard Neighbourhood, The Chesswood Neighbourhood and The Allen Neighbourhood (see map). The Sheppard Neighbourhood features the new TTC/GO station, scheduled to open this fall.