Canada Mortgage and Housing Corporation
|Crown corporation overview|
|Formed||January 1, 1946|
|Annual budget||$2.1 billion|
|Crown corporation executive|
|Website||CMHC official site|
In the period between the end of the first and second world wars the Canadian federal government had gradually become involved in housing policy through a series of programs, studies and legislation, including:
- Loans of $25 million to the provinces to support municipal construction in 1919 authorized through powers available under the War Measures Act;
- The 1935 House of Commons Special Committee on Housing which recommended a National Housing Policy to be controlled and administered by a housing authority that would administer funds voted by parliament to support its work;
- The 1935 Dominion Housing Act which created a fund to aid in housing construction;
- The 1937 Home Improvement Loans Guarantee Act which provided a government guarantee for bank loans to finance home improvements;
- The 1938 National Housing Act which replaced the Dominion Housing Act, expanding its scope to include financial assistance for the construction of rental housing for low-income housing; and authorizing a temporary program to subsidize the property taxes on newly constructed houses;
- The 1939 Central Mortgage Bank Bill, intended to create a Central Mortgage Bank owned by the government and managed by the Bank of Canada. The bank did not commence operations as priorities shifted to managing the war effort;
- The establishment of Wartime Housing Limited in 1941 to build affordable housing for munitions workers, returning veterans and their families; and
- The passage of major amendments to the National Housing Act in 1944 to consolidate federal housing programs under one statute.
CMHC was established in 1946 to administer the National Housing Act.
As World War II veterans returned, CMHC's programs supported social and rental housing and created public housing program for low-income families. New housing was offered very low cost mortgages, small down payments and easy terms. It later built and/or funded urban renewal projects in Canada's cities. CMHC is regulated under the Financial Administration Act, the Mortgage and Housing Act, and the National Housing Act. By 2013 the major role of the CMHC was to "improve housing quality, choice and affordability for all Canadians." With an estimated 2013-2014 budget of $2.1 billion, over $2 billion is directed at providing assistance to Canadians in housing need while the balance supports "housing market analysis work and policy, research, and information transfer activities." By 2010 CMHC had an annual financial surplus of more than $2 billion. CMHC is the largest Crown Corporation in terms of assets with some $26 billion in holdings as of 2008-2009. and the second largest after Canada Post in terms of revenue with some $4.6 billion in 2004.
CMHC is governed by a Board of Directors and is accountable to Parliament through the, Minister of Employment and Social Development. Previously the portfolio was held by the Minister of Labour and Housing. The board of directors and president are appointed by the Government of Canada.
One of the main functions of CMHC is to manage the federal Mortgage Insurance Fund (MIF), which was introduced in 1954 to provide protection to banks reluctant to enter the mortgage lending market.
Today its main function is to sell insurance to Canadian residential mortgage lenders to protect them against mortgage defaults. The cost of the insurance premiums is typically passed along to the borrower. Insurance is mandatory on loans with less than 20% down although lenders may require it on loans with more than 20% equity if they perceive additional risk of default). Besides mortgage insurance, the agency provides financing to housing projects and renovations, does housing market analysis and funds research into housing design and technologies along with the National Research Council. The mandate of CMHC, as Canada's national housing agency, includes facilitating accessibility to a "wide choice of quality, environmentally sustainable, affordable housing solutions."
Near the end of World War II, the Canadian government began to worry about the demobilization of thousands of soldiers in Europe, and their re-entrance to Canadian society.
With so many people coming back to Canada, a number of problems would arise, one being that there may not be enough housing existing to accommodate the soldiers and their desire to have families.
The agency was created in 1946 in response to housing demands after the return of World War II veterans and societal changes after the war included a policy that every family in Canada have their own home.
In 1946 when the Central Mortgage and Housing Corporation (changed to "Canada" Mortgage and Housing Corporation in 1979) was created, the National Housing Act had been in effect for two years. The cost and subsidies of CMHC's social and rental housing programs for low-income families, were shared 75% by the federal government and 25% by the province. New housing was offered very low cost mortgages, small down payments and easy terms. It later built and/or funded urban renewal projects in Canada's cities.
CMHC's role was to aid in the management and finance of housing projects in Canadian cities. It took over the assets of the Wartime Housing Ltd., that had built thousands of houses during the war. Upon creation, the Corporation was named Central Mortgage and Housing Corporation.
During the war, Ajax, Ontario, was constructed and operated by Wartime Housing Limited (1941 to 1949) in order to provide much-needed housing for munitions workers and returning veterans. In 1948, CMHC was given responsibility for Ajax. Its biggest challenges in establishing Ajax as a functioning municipality were reimbursing Pickering Township and Ontario County for municipal services provided to Ajax and establishing an official plan for the growing community acceptable to relevant government agencies. After considerable controversy regarding land and water control, CMHC submitted a successful application to the Ontario Municipal Board in May 1950 making Ajax an improvement district. This was the first step toward municipal status and allowed CMHC to the depart.
In the 1950s and 1960s, CMHC was the agency that approved urban renewal projects for federal funding and managed the housing funds for that purpose. There are numerous examples across Canada including Regent Park in Toronto and Habitations Jeanne-Mance in Montreal. For further examples, see List of public housing projects in Canada.
In 1954, the federal government amended the National Housing Act to remove the federal government from the direct finance of private housing projects, instead leaving mortgage financing to the banks. The banks thereafter began to issue mortgage loans with CMHC underwriting. If the individual receiving the loan went bankrupt then the bank who gave the loan would not lose money, but instead would be reimbursed by the government. As part of CMHC lending and insurance mechanisms, low-risk borrowers would have to pay insurance premiums if they wanted to borrow with small down-payments.
In 1979, the Corporation's name was changed to Canada Mortgage and Housing Corporation.
In the 1980s, the federal government withdrew from the financing of public housing projects. CMHC no longer directed funds to municipalities for the building of housing projects. Some government housing funds and mortgage guarantees since then have been provided for individual projects.
In May 2013 CMHC VP Douglas Stewart reported on estimates of the 2013-2014 budget.
In 2013-14, CMHC is estimating budget expenditures of $2.1 billion. Just over $2 billion of this amount will be used to provide assistance to Canadians in housing need, including low-income families, seniors, people with disabilities, aboriginal people, and victims of family violence. The balance will support CMHC's housing market analysis work and policy, research, and information transfer activities. CMHC's estimated budgetary expenditures for 2013-14 represent a net decrease of $39.2 million from last year's main estimates. The difference is mainly due to savings as a result of budget 2012 reductions, reduced expenditures due to the expiry of long-term housing project operating agreements, and changes in the timing of funding requirements for new commitments of affordable housing. These reductions are partially offset by increases in operating expenses and an increase in funding for housing construction and rehabilitation on reserve. The main estimates also reflect non-budgetary expenditures for CMHC. The number in the estimates is negative, as we will repay more than we borrow from the consolidated revenue fund in 2013-14. CMHC is estimating non-budgetary repayments of $41.9 billion this fiscal year, primarily due to changes in loan repayments under the insured mortgage purchase program.— Douglas Stewart
- As of March 31, 2016, CMHC's insurance-in-force was $520 billion.
In 2013-2014 the CMHC reported a financial source-reflecting the difference between cash coming in to the Government and cash going out-of $17.5 billion in 2013-2014 and $30.2 billion in 2012–13. "It differs from the budgetary balance, which measures revenues and expenses as they are earned or incurred rather than when the associated cash is received or paid...This change is largely due to the repayment of principal on assets maturing under the Insured Mortgage Purchase Program (IMPP) administered by Canada Mortgage and Housing Corporation (CMHC)."
Influence over housing projects
CMHC provides assistance and guidance to the private sector in the building, design and planning of houses. Thus provincial governments have aligned their housing standards and planning practices along those of CMHC.
CMHC also makes financial loans to cities at lower interest rates for the development of housing projects.
Thus, both the cities and provinces in Canada rely on CMHC for the continuation of housing development in the areas under their jurisdiction.
This alignment has had a number of influences on Canadian housing in general:
- Development of the policy of every Canadian family having a home.
- Development of a national building code
- Building experimental houses for new and improved building techniques and technology
CMHC invested $1.9 billion (2009-2014) for housing and homelessness programs for "homeless people and those at risk of homelessness-low-income Canadians, seniors, people with disabilities, recent immigrants and Aboriginal Canadians" and $2 billion (2009-2011) more towards the construction and renovation of existing social housing units.
By May 2012, CMHC had approved 272 loans for the full $2 billion available under the Municipal Infrastructure Lending Program (MILP) (2009-2012) which provided low-cost loans to municipalities for housing-related infrastructure projects: "water, wastewater and solid waste services, fire halls and power generation; local transportation infrastructure within or into residential areas, such as roads, bridges and tunnels; and residential sidewalks, lighting, pathways and green space." Directly and indirectly the program responds to the crisis of affordability of housing in Canada but also to the federal government's top priority, which is job creation and economic growth.
- Reduced mortgage insurance premiums by 15 percent and eliminated the homeowner price ceilings..
- Longer amortization periods (from 25 years up to 40 years).
- Higher loan-to-value ratio loans (up to 100 per cent). 0% down payment.
- Niche products for near-prime3 borrowers.
- Streamlined loan documentation requirements with respect to borrowers' income and employment.
In October 2008 the government introduced the Insured Mortgage Purchase Program to ensure that there were adequate medium-to-long term funds available for lending during the financial crisis. Financial institutions tendered $69 billion in mortgages between October 2008 and March 2010. The mortgages posed no additional risk to the government, as CMHC already held the insurance. Nor did this relieve the banks of questionable or "toxic" assets, as only insured mortgages qualified, and indeed they are among the soundest assets the banks hold. The last of the mortgages purchased under the program were repaid on March 15, 2015. CMHC earned a net profit of $2.5 billion from the program, which was structured such that the interest on the mortgages exceeded the government's borrowing costs.
- Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
- Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes.
- Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.
In January 2011, the Government of Canada announced changes to CMHC mortgage insurance guidelines:
- Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.
- Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
- Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.
In June 2012, the Government of Canada announced further tightening of the criteria necessary to qualify for government-backed insurance on new home mortgages with less than a 20 per cent down payment:
- Reduce the maximum amortization period to 25 years from 30 years. The maximum amortization period was set at 35 years in 2008 and further reduced to 30 years in 2011.
- Lower the maximum amount Canadians can borrow when refinancing to 80 per cent from 85 per cent of the value of their homes.
- Fix the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent. This will better protect Canadian households that may be vulnerable to economic shocks or an increase in interest rates.
- Limit the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million.
These most recent changes to the criteria for CMHC-backed mortgage insurance largely return the qualifications for low loan-to-value ratio mortgages back to where they were in 2006, when CMHC and its private sector competitors started insuring mortgages with no down payments and amortization periods of up to 40 years.
Subsequently, Minister of Finance Jim Flaherty stated that he would like to see CMHC privatized in the next five to 10 years, arguing CMHC has greatly exceeded its original mandate to provide housing to veterans of the Second World War and that taxpayer exposure to the housing market should be reduced.
All Canadian mortgage securities are traded on an open exchange and insured by the Government of Canada.
- Stewart, Douglas (23 May 2013). "Human Resources Committee on May 23rd, 2013". Open Parliament. Retrieved 14 November 2014.
- "Our Management Committee". Canada Mortgage and Housing Corporation.
- "History of CMHC". Canada Mortgage and Housing Corporation. Retrieved 14 November 2014.
- Bryce, Robert (1986) Maturing in Hard Times - Canada's Department of Finance Through the Great Depression. The Institute of Public Administration of Canada. pp. 163-171.
- Bumsted, J. M. (Oct–Nov 1992). "Home sweet suburb". Beaver. 72 (5): 26–34.
- Savoie, Denise (17 June 2010). "Debates of June 17th, 2010". Open Parliament. Retrieved 21 June 2010.
- Hulchanski, J. David (9 May 2003). What Factors Shape Canadian Housing Policy? The Intergovernmental Role in Canada’s Housing System (PDF). Conference on Municipal-Federal-Provincial Relations in Canada. Queen’s University, Kingston, Ontario.
- "How Much Does CMHC Mortgage Loan Insurance Cost?". Canada Mortgage and Housing Corporation.
- Announcement — Municipal Infrastructure Lending Program (Speech). Québec City, Québec: Canada Mortgage and Housing Corporation. May 23, 2012. Archived from the original on 11 June 2013. Retrieved June 5, 2012.
- McGeachy, Robert (Autumn 2006). "CMHC in Ajax, Ontario: 1948-1950". Ontario History. 98 (2): 209–224. ISSN 0030-2953.
- Canada Mortgage and Housing Quarterly Financial Report, March 31, 2016 https://www.cmhc-schl.gc.ca/en/corp/about/core/upload/quarterly-financial-report-march-2016.pdf
- CMHC (31 March 2014). Quarterly Financial Report (PDF) (Report).
- "Minister Finley delivers keynote address at conference on housing and homelessness" (Press release). Employment and Social Development Canada. February 18, 2009.
- Economic Analysis of the Statutory Requirement for Insurance on High-Ratio Mortgage Loans (Report). Department of Finance Canada. May 26, 2005.
- "Backgrounder Residential Mortgage Insurance" (Press release). Department of Finance Canada. 3 November 2008.
- The Insured Mortgage Purchase Program, Jean-François Nadeau , Library of Parliament , March 13, 2009 http://www.lop.parl.gc.ca/content/lop/researchpublications/prb0856-e.htm
- Canada Mortgage and Housing Quarterly Financial Report, March 31, 2013 www.cmhc-schl.gc.ca/en/corp/about/core/upload/2013_Q3_QFR_Publication_English_Final.pdf
- Canada Mortgage and Housing Quarterly Financial Report, March 31, 2015 http://www.cmhc-schl.gc.ca/en/corp/about/core/upload/Q1_2015_QFR_MAY22_2015_EN_w_ACC.pdf
- "Government of Canada Takes Action to Strengthen Housing Financing" (Press release). Department of Finance Canada. February 16, 2010.
- "The Harper Government Takes Prudent Action to Support the Long-Term Stability of Canada's Housing Market" (Press release). Department of Finance Canada. January 17, 2011.
- "Harper Government Takes Further Action to Strengthen Canada's Housing Market" (Press release). Department of Finance Canada. June 21, 2012.
- "CMHC adds 40-year term, 100% funds as products". National Post. November 20, 2006.
- Perkins, Tara (October 22, 2012). "Flaherty eyes privatization of CMHC". The Globe and Mail.