Canada Mortgage and Housing Corporation
The Canada Mortgage and Housing Corporation (CMHC) is a Federal government agency that specializes in housing and provides mortgage insurance, mortgage-backed securities, social housing programs and conducts research on housing.
Structure of the Canada Mortgage and Housing Corporation
The Corporation is owned by the Canadian Federal government who, through the Ministry of Labour and Housing, appoint and control the board of directors and president of the corporation, It is set up as a Crown corporation and is Canada’s second largest crown corporation in terms of revenue behind Canada Post.
The role of the Canada Mortgage and Housing Corporation in Mortgage Insurance
In Canada it is compulsory to have mortgage insurance if you have a “high ratio” loan, which is defined as any loan with a down payment of less than 20% of the house value. Some mortgage providers insist on mortgage insurance with a higher loan to value relationship. The mortgage insurance covers the lender if the borrower defaults on their mortgage.
Currently roughly half of home buyers either must have or choose to have mortgage insurance. In the longer term since 1954 the figure has been one in three. About two thirds of the home insurance purchased in Canada is through the Canada Mortgage and Housing Corporation, although there are no legal barriers to private entrants such as General Electric (who trade under the Genworth Financial brand).
The mortgage insurance market is known to be very profitable as the average payout, the insurance industry’ profit ration, was 45% of contributions in 2003. This compared with average payouts of around 75% in areas such as auto insurance and personal accident insurance. There are a number of reasons for this, such as the fact that mortgage insurance is paid out over years, and so is not noticed, there is relatively little competition and that it is compulsory for most of the buyers.
The Corporation claim that this is seasonal and in times of rising unemployment and falling house prices they expect claims to rise dramatically.
As well as mortgage insurance, the Canada Mortgage and Housing Corporation finances new housing projects. It also carries out analysis of the housing market and pays for research into housing technology and design.
Influence over housing projects
The Canada Mortgage and Housing Corporation advises the private sector with design, building and planning. Provincial governments also base their housing standards and planning practices with those of the Canada Mortgage and Housing Corporation, and eventually a national building code has been developed. City governments also manage to get low-interest rate loans to build housing projects. It can often use this to influence city governments such as Calgary to increase the provision of low cost social housing.
In 1939 Wartime Housing Ltd was set up by the Canadian government. During the war the company built thousands of homes. Towards the end of Second World War, the government became concerned that the return of a large number of Canadian servicemen would lead to a shortage of family housing. In 1946 the Central Mortgage and Housing Corporation was set up with the aim that every Canadian family should live in their own home and so that returning servicemen could be provided with housing. The CMHC was to help finance, build and manage city housing projects.
In 1954 this direct financing was changed into an insurance program so that private mortgage providers would finance new building. The Corporation was renamed in 1979 getting its current name, the Canada Mortgage and Housing Corporation.
The Canada Mortgage and Housing Corporation is credited with developing standard down payment terms, usually around 10%. These affordable down payments encouraged families to buy their own homes which along with the wide availability of automobiles fuelled the growth of Canadian suburbs.