Tuesday, May 8, 2012

CMHC contemplated selling mortgage insurance business

You know these guys have to have the data about what's to come. I just can't believe they are sailing along the way the appear to from the outside. CMHC considered selling mortgage insurer as housing bubble fears grew
The board of Canada Mortgage & Housing Corp. considered selling the home loan insurer last year, according to former Chairman Dino Chiesa, who’s term ended in March. CMHC, set up in 1946 to promote home ownership, also studied the sale of Australia’s government-owned insurer and presented the findings to the Bank of Canada, according to documents released to Bloomberg News under Canada’s Access to Information Act.
CMHC analyzed Australia’s housing finance system, where the government-owned mortgage insurer was sold to the private sector in 1997. Since the 2008 credit crunch, Australian homeowners pay “relatively higher margins on their mortgages than do Canadians; the lending industry has become more concentrated and less competitive,” according to the documents obtained by Bloomberg News, which show the analysis was presented to Bank of Canada officials last June.


jesse said...

Maybe Bank officials, at least one I am certain, realised that privatising CMHC does almost nothing to alleviate the government from existing liabilities.

And using the Australian model as some panacea... maybe we should wait that one out and see how it goes.

GG said...

If they planned to keep the same structure as the other private insurers with the 90/10 split, yeah. It certainly wouldn't change the liabilities much.

jesse said...

I don't think it's possible for the government to abdicate its current obligations, not without causing major annoyance in capital markets.

They can restructure the MI market to be more like the US model where they only cover the first x% of losses and the rest needs to be hedged in other ways. It would almost certainly be for new loans only and the existing liability will remain a liability the auditor general will include when reviewing government finances.

GG said...

Good points.