CMHC asks Canada’s banks to reduce risky mortgage lending

The CEO of at Canada Mortgage and Housing Corp, (CMHC) asked the nation’s lenders to reconsider offering mortgages to borrowers with high debt levels, noting that excessive borrowing will only worsen the situation.

According to Evan Siddall, CMHC has lost market share because of restrictions it implemented for high-risk borrowers earlier this summer.

He says private insurers have picked up that share, weakening CMHC’s position and threatening its ability to protect Canada’s mortgage market in case of a crisis.

In his opinion, the national mortgage insurance system shouldn’t help people “purchase homes with negative equity”. Its goal is to offer 95% LTV mortgages with a 4% insurance fee amid an economic crisis.

“Our decision to tighten underwriting standards was caused by economic systemic worries,” – noted Siddall.

“Yes, we have willingly chosen to let go some profitable business and our competitors were very glad to know that,” – he noted. “CMHC’s purview goes further than commercial interests to macroeconomic influence and there is a dark economic side in this business that I would like to show.”

Canada’s housing market has been showing strong activity, supported by historically low mortgage rates and a lack of new listings. However, Siddall believes this tendency will not last forever, and we’ll see prices going down in late 2020 after the government shuts down its COVID-19 emergency measures.

“CMHC plays a vital role in supporting the national economic recovery as it concerns the real estate market,” – says Len Catling, a CMHC spokesman. “Evan Siddall’s letter to the financial industry underlines CMHC’s commitment to economic rebound and asks for a strong effort from all to protect the economic futures of Canadians.”

Siddall had two main requests for Canadian lenders: “We really hope you reconsider highly leveraged household lending. Please, put Canada’s long-term forecasts ahead of short-term profits. Second, please don’t worsen the influence by hitting CMHC’s market presence unnecessarily.”

According to him, CMHC’s ability to respond effectively will be shaken in case its market share reduced significantly. “If you want us in wartime, please, support us in peacetime.”