OSFI to supervise CMHC

Gordon Isfeld, Financial Post Staff  Apr 26, 2012
OTTAWA  — Finance Minister Jim Flaherty confirmed Thursday the government will tighten regulations for Canada’s housing agency in a bid to help limit the risk to financial institutions amid a red-hot housing market.
Mr. Flaherty said the new measures will “enhance the government and oversight framework for Canada Mortgage and Housing Corp.”
“These proposed changes are part of the government’s continuous efforts to strengthen the housing finance system,” he said. “They will contribute to the stability of the housing market and benefit all Canadians.”
Mr. Flaherty said the Office of the Superintendent of Financial Institutions will be responsible for reviewing and monitoring CMHC’s commercial activities.
CMHC is responsible for insuring consumer mortgages and guarantees mortgage-backed securities issued by banks.
CMHC currently has a $600-billion loan limit, which the government increased three years ago from $450-billion.
The federal government currently guarantees the full value of mortgages insured by CMHC and 90% of loans insured by private firms.
The legislation was tabled Thursday in Parliament.
On Wednesday, Mr. Flaherty told reporters “the issue that pushes them near their lending limit is the desire of some of the financial institutions to purchase portfolio insurance for their low ratio mortgages,” adding “that’s not the way most people usually think of CMHC.”
The changes were alluded to in the government’s March 29 budget.
“The government will propose legislative amendments to strengthen oversight of CMHC and to ensure its commercial activities are managed in a manner that promotes the stability of the financial system,” according to the budget document.
“A legislative framework will support financial stability by helping lenders find new sources of funding and by making the market for Canadian covered bonds more robust,” it said.
Queen’s University finance professor Louis Gagnon said Thursday: “I have been concerned about the CMHC for a long time. I believe that the federal government’s plan to bring CMHC under the direct supervision of the Office of the Superintendent of Financial Institutions (OSFI) is long overdue.”