Changes to CMHC unlikely to affect borrowers during housing boom

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Further changes may be in store for the Canadian Mortgage and Housing Corporation. Finance Minister Jim Flaherty announced his plans to reporters in New York recently.

In the coming months and years, CMHC will be subject to stricter reporting standards, particularly when it comes to securitization, Flaherty said at a tax conference hosted by the George W. Bush Institute. He went on to note that home prices in Canada have become over-inflated at the same time Canadians are piling on more mortgage debt. Despite the trend, Flaherty said he has no intention of intervening in the housing market, preferring instead to let the market correct itself.

Even before the New York conference, Flaherty had made some significant moves affecting the CMHC in the federal budget. The organization, which provides mortgage insurance to lenders, will see its liability cap remain at $600 billion. The cap had been raised a number of times in recent years as Canadians took increasing advantage of historically low mortgage rates. Though Flaherty and other Ottawa officials have been reluctant to impose any stringent restrictions on borrowing to slow Canada's housing boom, keeping the CMHC cap could have the effect of slowing lending as banks and other institutions find themselves without a safety net.

Despite any intentions Flaherty may have had in limiting the CMHC's ability to insure mortgages, the market does appear to be correcting itself, though perhaps not in the way ministers in Ottawa would like. Instead of slowing mortgage sales, more private mortgage insurance firms have picked up where the CMHC left off, according to a Globe and Mail report. One such firm, Canada Guarantee, has seen its market share grow significantly in the last two years. Its parent company, AIG, went bust at the start of the recession, dragging the Canadian brand down with it.

With the increased availability of mortgage insurance from private firms, borrowers shouldn't have much difficulty in securing home loans. In fact, there doesn't appear to be much of a slowdown in housing at all. A recent CMHC report showed new housing starts – mostly condos and apartment buildings – were up 5 percent in March. With the housing industry showing no signs of slowing, Canadians looking for a good deal on housing should consult with a mortgage broker to find the best rates and lowest-cost insurance available.

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