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Should CMHC be Privatized?

When Jim Flaherty unveiled the 2013 federal budget, and showed his policy changes to CMHC, it brought up once again the question of whether or not CMHC should be privatized. This is not a new conversation, but the recent changes are already going to limit the amount of CMHC mortgage insurance that’s eligible to consumers, and so it’s brought the topic up once again. What’s the answer in the end? No one knows just yet, but it is fairly obvious that either way, it’s going to be consumers that pay the ultimate price.

Jane Londerville, associate professor and interim chair of the Department of Marketing and Consumer Studies at the University of Guelph, points out the good and the bad of CMHC. Also being a professor of real estate finance and appraisal, she authored a 2011 report that outlined how many benefits there were to privatizing CMHC.

“It served as admirably in the recent financial crisis,” she says. “But it has one important failing: it denies consumers benefits from full competition by giving the CMHC as unfair advantage over private firms.”

That’s certainly true enough when you compare the market share differences between CMHC and private mortgage insurers.

CMHC is a Crown corporation and so, any mortgages it ensures are 100 per cent backed by the federal government; and that in turn, means that they’re backed by the taxpayers. CMHC also has a cap of $600 billion on their mortgage insurance; while private mortgage insurers, Genworth Financial and Canada Guaranty, have caps of $350 billion each. CMHC controls about three-quarters of the mortgage insurance in the country; while Genworth and Canada Guaranty split the difference.

The differences are quite obvious, and it’s easy to argue that CMHC simply has too big of an upper hand when it comes to mortgage insurance in Canada.

In her report, Ms. Londerville also pointed towards the fact that privatizing the Crown corporation would help eliminate government interference with the housing and mortgage market – something critics have been very vocal about over the past several months.

Chris Karram, founding partner of Safebridge Financial, agrees with her on that one.

“I really see this as a double-edged sword, with the consumer taking the brunt of the blade in either case,” he says. “If we leave things as is, that enables the government to make decisions that can drastically impact our real estate market as we’ve seen since last July.”

But just how much good does it do to turn things over to a private corporation? Karram says that this doesn’t necessarily mean that it will be cheaper for the consumer, even if it does mean more competition on the playing field.

“Some may say it gives them more power than necessary for the specific service that CMHC provides and based on the original purpose of CMHC,” he says. “On the other hand, privatizing mortgage insurance will eventually put the decisions in the hands of a business, which has one goal, to make profit.

“In the end, it’s a tough decision either way,” he continues. “But at least if it was private then the Canadian government wouldn’t be able to dictate decisions that are made as they did in the case of the Manulife scenario.”

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