Morgan: CMHC reaching limit for insurance mortgage coverage

The Canada Mortgage and Housing Corporation is nearing its limit for insured mortgages.

In the hustle and bustle of everyday life, whispers are being heard of Canada’s mortgage cap reaching an all-time high with concerns about Canada’s economy hanging in the balance.

With mortgage rates at an all-time low, such as Dominion Lending Center reflecting 2.84 per cent on a five year term, homeowners have taken on substantial household debt.

Finance Minister Jim Flaherty was said to be concerned about lenders loosening their mortgage standards, resulting in “emerging risk” to Canada’s economy.

As well, the Canada Mortgage and Housing Corporation is nearing its limit for insured mortgages.

CMHC controls about 75 per cent of the market and is 100 per cent backed by the federal government.

The numbers say it all—CMHC’s number was about $541 billion in insured mortgages and the agency’s limit is $600 billion.

That leaving only $59 billion for future mortgages.

This has resulted in federal government is again cracking down on Canada Mortgage and Housing Corp. and the mortgage insurance sector.

Anyone with less than a 20 per cent down payment and borrowing from a financial institution regulated by the Bank Act must purchase mortgage default insurance. However, banks have been purchasing the insurance on behalf of clients, because their loans were more easily secured with federal government backing.

“These measures will restore taxpayer-backed portfolio insurance to its original purpose of allowing access for funding mortgage assets,” according to the 2013 federal budget document that Ottawa implemented.

OSFI, the regulator in charge of all federally monitored financial institutions in Canada, has expressed concern that mortgagors may have borrowed more that they can afford once the rates eventually start to increase.

Still, CMHC is still under its lending limit for now, so the issues about what happens next when that limit is exceeded remains  just speculation.

Personally, I just think it is better to know the worst odds and be informed and prepared for that outcome, rather than live your life in a ‘bubble’ and think that money just falls from the sky.