The Canada Mortgage and Housing Corporation ( CMHC ) complex in Ottawa on Thursday Oct. 9, 2008.Sean Kilpatrick/The Globe and Mail
Canada Mortgage and Housing Corp., the Crown corporation that has long dominated the country's mortgage insurance market, is losing market share to its private-sector rivals.
CMHC insured 27,869 housing units during the first three months of the year for borrowers who had a down-payment of less than 20 per cent.
That number was 39.1-per-cent lower than in the final quarter of 2013, and 6.6-per-cent lower than the same time last year. The steep quarter-over-quarter decline is in large part because fewer homes tend to sell at the start of the year. But another factor – and the main reason for the year-over-year decline – is "decreasing market share," CMHC said.
Federally-regulated banks and lenders are obligated to buy mortgage insurance in Canada when they sell a mortgage to a home buyer who does not have a down-payment of at least 20 per cent (they almost always pass the cost of the insurance premiums on to the borrower). The insurance pays the bank back if the borrower defaults.
CMHC is the dominant player in the business. Its two private-sector rivals are Genworth MI Canada and Canada Guaranty. The Crown corporation estimates that 45.3 per cent of the dollar value of outstanding residential mortgages in Canada had CMHC insurance at the end of the first quarter, down from 48.5 per cent a year earlier.
Banks increased the amount of business that they gave to CMHC, as opposed to its rivals, during the financial crisis because the federal government backstops or guarantees CMHC's business to the tune of 100 per cent, while the guarantee for the private-sector rivals is 90 per cent. The extra level of guarantee bolstered CMHC's market share during and after the financial crisis, because lending at that time was riskier for banks and they sought the extra level of guarantee.
But more recently Ottawa has been taking steps to curb the growth of CMHC, as well as taxpayers' exposure to the mortgage market. The International Monetary Fund said in November that it thought the Canadian government should be doing more to scale back its role in the mortgage insurance business, and share more of the risk with the private sector.
As part of Ottawa's efforts, CMHC is voluntarily, under its new CEO Evan Siddall, taking steps to rein in business to reduce its own risks as well as the degree to which it stokes the housing market. The Crown corporation announced last month that, effective May 30, it is no longer insuring second homes or offering mortgage insurance to self-employed people who don't have certain documents to prove how much money they make. CMHC has said that more changes are on the way.
Its private-sector rivals are not tightening their products to the same degree, spotting an opportunity to make even more market-share gains.
The amount of insurance that CMHC has in force has shrunk slightly to $555-billion in the latest quarter, down from $557-billion in the fourth-quarter of 2013 and $563-billion a year earlier. That number falls when the amount of new insurance that CMHC sells comes in below the amount of mortgage debt that consumers are paying off.