Harper says government not planning to privatize CMHC

The federal government is denying a report in the Globe and Mail that says it is planning to privatize Canada's federal housing agency. 

The article, which cites anonymous sources linked to the finance minister's office, claims the federal government is weighing the sell off of Canada Mortgage and Housing Corporation’s mortgage insurance and securitization businesses.

“Reports about any privatization of CMHC are unfounded, baseless, and do not even merit discussion because they are not on the agenda,” said Diane Finley, minister responsible for Canada Mortgage and Housing Corporation during Question Period in the House of Commons on October 16. 

“We are not planning any privatization of CMHC. I repeat. We are not planning any privatization of CMHC,” she added.

“A sale is not imminent, and observers believe there is no chance it would take place until after a federal election,” according to the Globe and Mail article. “Nor is there a cut-and-dried case in favor of privatization. 

“But it’s clear that the days of CMHC being a significant source of cash for the federal government are numbered — with or without privatization.”

Prime Minister Stephen Harper described the claim as “a rumor that is utterly false,” while Finance Minister Jim Flaherty said the reports were news to him.

The Globe and Mail article noted CMHC reserves are expected to rise to $9.5 billion within four years. These excess funds have raised a big red flag, and CMHC is now facing pressure from many sources.

Private companies, for example, are ready to enter the lucrative mortgage insurance market currently dominated by CMHC. 

AIG United Guaranty became the third company to provide mortgage insurance in Canada in mid-October, and two more companies are expected to enter the market next year.

CMHC currently handles 70 per cent of the mortgage insurance market in Canada, while private insurer Genworth Financial Canada (formerly GE Financial) covers the remaining 30 per cent.

“We have seen significant activity in the Canadian mortgage insurance industry over the past six months in anticipation of increased competition,” said AIG United Guarantee president Andy Charles.

Under the new company’s criteria, investors with a 10-per-cent down payment will be able to get insurance on rental properties of one to four units. The company is also offering products with 30-, 35- and 40-year amortization periods.

CMHC is now offering insurance on interest-only mortgages, waiving applications for some loans and insuring mortgages with amortization periods of up to 35 years.

“These innovative financial solutions will allow more Canadians to buy homes and to do so sooner,” said CMHC president Karen Kinsley.

Bank of Canada Governor David Dodge has warned that these initiatives could be inflationary, driving up house prices.

Dodge said interest-only mortgages have been introduced in other countries where they have had an influence on housing prices.

Economists also have warned that interest-only loans and long amortization periods heighten the financial risk to consumers and have the potential to deal a severe blow to indebted Canadian households.

Social housing advocates want CMHC’s excess reserves to fund more affordable housing units. 

For its part, the federal government has signaled it wants out of the housing business altogether, arguing that housing is a provincial responsibility.

— Canadian Real Estate Association and WREN staff.