# CMHC lending cap for banks



## YYC (Nov 12, 2012)

Saw this news this morning...

http://news.ca.msn.com/top-stories/cmhc-cools-mortgage-market-with-new-cap-for-banks

Was this expected? Seems to me this might be the straw that breaks the camel's back. I wonder if it will have a more dramatic effect than all the other changes, which didn't seem to slow the runaway real estate train down very much.


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## kcowan (Jul 1, 2010)

Interesting. This means that the banks will stop offering guaranteed mortgages when their annual cap has been reached.


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## andrewf (Mar 1, 2010)

Well, banks can still get mortgages insured by CMHC. This measure caps the bulk insurance for securitization (ie, bundling mortgages and selling them to third parties). This practice is very lucrative for banks, generating very high ROE. Banks can continue to insure mortgages that they hold on their balance sheet.

Turns out that CMHC is now being run and regulated by finance/risk management people. Up to now it was run by plumbers, developers and real estate agents and regulated by the Human Resources minister. No conflict of interest there...


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## andrewf (Mar 1, 2010)

This also sort of underscores the point that the government will continue tightening credit conditions for the housing market until it rolls over.


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## HaroldCrump (Jun 10, 2009)

Analysts are expecting fixed rates to rise between 25 and 65 bps as a result of this.
That is not nearly enough to cool the housing market.


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## emperor (Jul 24, 2011)

They will let this set in then if housing doesn't cool they will do something else. People apparently haven't gotten the memo that housing is way over priced. I think the goverments plan is to make house prices stangnate until wages increase. They don't want houses to drop in price but they don't want them to go up either. Long story short, just like everything else it's all manipulated.


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## james4beach (Nov 15, 2012)

Isn't it amazing how this is being portrayed as tightening by the government?

I mean they have this enormous $600 billion program that pumps money into the mortgage market, at the expense of the nation, and people lose sight of this and actually think there's _tightening_ going on!

Tightening would be if they notably reduced the CMHC balance sheet size. Otherwise, CMHC is a stimulus program plain and simple.

This is the problem with a market that's grown accustomed to stimulus, such as the CMHC, or ZIRP, QE, etc. Just keeping the stimulus level steady isn't enough any more. It's like a drug. You need more, more more!


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## ChrisR (Jul 13, 2009)

james4beach said:


> Isn't it amazing how this is being portrayed as tightening by the government?


That's exactly what I was thinking. Last year they guaranteed 76 billion. This year they're going to guarantee 85 billion... clearly they're trying to slam the brakes the housing market!


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## james4beach (Nov 15, 2012)

Not to mention of course the ridiculously low interest rates (controlled by Bank of Canada and US Federal Reserve) which also stimulates mortgages & housing activity.

Between CMHC and historically low interest rates, it's stimulus in full force. I think it's reckless what they've done, and continue to do.


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## Eder (Feb 16, 2011)

CMHC has been a great thing for people that otherwise could not afford their own home for a long long time...how is this somehow all of a sudden a manipulation or stimulus...I think I used CMHC in about 1978 or so to buy my 1st condo. CMHC is a very Canadian thing and one program along with universal health care that I am proud to support.


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## newfoundlander (Nov 26, 2011)

I'm not that negative on CMHC as a concept, either - at least it incentivises a typical responsible buyer to get the downpayment savings to a level where they can take advantage of it.

The benefits to the bank likely should be reigned in somehow in relation to the MBS story, though. Is there a mechanism that could force a Bank to keep a %share of any issued MBSs on their balance sheet for a specified time period to disincentivise the "originate, bundle, sell, repeat" process?


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## HaroldCrump (Jun 10, 2009)

Eder said:


> CMHC has been a great thing for people that otherwise could not afford their own home for a long long time...how is this somehow all of a sudden a manipulation or stimulus...I think I used CMHC in about 1978 or so to buy my 1st condo. CMHC is a very Canadian thing and one program along with universal health care that I am proud to support.


But Eder, that is not the type of program that is being discussed here.
This clawback is for the bulk insurance program, which is used by banks to guarantee the securitized mortgages re-sold to other investors such as pension funds, foreign institutions, etc.
This is the guarantee for the MBS market - remember those tranches of CDOs and ABCPs from the US?

This program is also used by the banks to meet their liquidity ratios and capital ratios.

Yes, it does reduce borrowing costs for homeowners, but the primary benefit is for banks that can offload their entire MBS portfolio risk to the tax-payers and wash their hands off it.

This program should not exist at all, let alone a $350M per bank "limit".
The OSFI and the Ministry of Finance should put forward a roadmap for phasing out this program.


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## birdman (Feb 12, 2013)

I agree with you HaroldCrump and I wonder what the impact may be on some of the players in this market. I recently checked out Peoples Trust site and while details seem to be lacking, it appears they could be a sizeable player in this market. Not sure on this but it will be interesting to follow.


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## Cal (Jun 17, 2009)

They should have done this already, it would have allowed to increase mortgage rates, yet keep the lending rate low to help the economy recover.

I am curious to see what effect it has on mortgage rates.


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## andrewf (Mar 1, 2010)

Estimates I've seen are for an increase of 25 - 65 bps in mortgae rates.


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