First-time Buyers May Be Subsidizing Ottawa’s Bottom Line, New Paper Says

March 08, 2012 - News Release

Canada’s mortgage finance system, especially insurance requirements for first-time buyers, needs a thorough review, according to a new briefing paper by a University of Guelph professor.

Prof. Jane Londerville of the Department of Marketing and Consumer Studies discusses her concerns about insurance and other mortgage issues in the paper, released this week by the Macdonald-Laurier Institute, an independent public policy think-tank in Ottawa. She appeared on the Business News Network Thursday to talk about the report.

The submission to the federal government of $14 billion between 2001 and 2010 by the Canada Mortgage and Housing Corp. (CMHC) may have come at the expense of buyers who have no choice but to pay the flat, upfront mortgage insurance fee, she said.

“CMHC may be helping to fill government coffers through what is essentially a tax on young homebuyers,” said Londerville, a mortgage finance and real estate expert.

“I believe we need to take a close look at innovations in other jurisdictions to see if we can make mortgage insurance in Canada more affordable, while still preserving the security of our existing system.”

Londerville is also concerned about the government policy of providing differential insurance backing on mortgages provided by CMHC versus private providers. The government fully backs mortgages insured through CMHC, but provides only 90-per-cent backing for mortgages insured through private mortgage insurers.

“We need to step back and look at the impact of policies implemented during the roar of the financial crisis, and how they are affecting Canadians and our financial stability,” she said.

“We have an excellent system envied around the world, but that doesn’t mean it cannot be improved.”

Since the onset of the financial crisis, banks have shown a strong preference for the 100-per-cent guarantee provided by CMHC. This explains in part the ballooning of liabilities on CMHC’s books, she said. Today, CMHC insures close to $600 billion worth of mortgages, almost double the amount in 2007. By comparison, at least one of Canada’s two private mortgage insurers saw a decline in insurance written in 2009 during the financial crisis.

“Considering the skyrocketing demand for mortgage insurance, the rationale for the government’s different treatment of private mortgage insurers and the CMHC is not clear,” Londerville said.

“We need to do a thorough review of both to see if there is any real disparity in the types of loans insured by these two groups.”

She suggests the review include criteria used to lend to homeowners, oversight and regulation of the CMHC, and the current pricing structure of mortgage insurance, including an examination of more affordable fee structures in other jurisdictions.

Prof. Jane Londerville
Marketing & Consumer Studies
519-824-4120, Ext. 53091

For media questions, contact Communications and Public Affairs: Lori Bona Hunt, 519-824-4120, Ext. 53338, or, or Shiona Mackenzie, Ext. 56982, or

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