CMHC says its mortgage insurance less risky, bringing in more income

OTTAWA – The federal housing agency says it is insuring fewer high-risk mortgages, paying out less in claims and taking in more revenues as a result of improving economic conditions and tighter lending rules.

The Canada Mortgage and Housing Corporation’s report for the third quarter shows its total portfolio of insured mortgages dropped by $6 billion to $560 billion at the end of the third quarter, adding distance from the legal maximum of $600 billion.

And it says its net income for the first nine months of this year rose 11 per cent to $1.3 billion, mainly because of lower claims.

For the quarter in isolation, net income rose 20 per cent to $452 million.

While insurance volumes picked up in the third quarter, for the year to date total volumes declined 14 per cent over the same period last year, the agency said.

“The year-to-date decline is attributed to the reduced size of the high-ratio homeowner mortgage loan insurance market as a result of the new mortgage insurance parameters that took effect in July 2012 and to lower portfolio insurance volumes compared to the same period in 2012,” CMHC said in a release.

Earlier in the week, the International Monetary Fund recommended that the government consider phasing out CMHC’s role in insuring mortgages, arguing that the government guarantee encouraged activity in the housing market.

Finance Minister Jim Flaherty has also mused about the issue, pointing out that originally CMHC was intended to support social housing but had, over the years, morphed into a financial behemoth.

Flaherty has also expressed concern that the government-backed insurance that CMHC issues exposes taxpayers to risk should a shock or housing collapse occur.

The agency’s third-quarter report suggests that at present the risk is very low despite what economists perceive to be an overheated and overpriced market.

It says the average credit score for high-ratio homeowner approved loans actually improved to 741 in the first nine months of this year compared with from 737 in the same period in 2012.

“The high average credit score demonstrates a strong ability among homebuyers with CMHC-insured mortgages to manage their debts,” the agency said.

“The strength of CMHC’s mortgage insurance portfolio is further demonstrated by the overall arrears rate of 0.33 per cent at Sept. 30, 2013,” it added, a shade higher than at the end of the second quarter but a 0.02 percentage point improvement compared to the year-end 2012.

Based on updated property values, CMHC said three quarters of the mortgages it has insured have loan-to-value ratios of 80 per cent or less.