Canada Mortgage & Housing Corp (CMHC)

By Robert Rosenberg I remember back when I worked at Lowney there was a young twenty-something year old client who had just reserved her first home with us. Leaving our sales office, with her parents on either side, it was clear the young woman was bursting with joy at the thought of owning her very first condo. Upon seeing her face, Kim, the saleswoman who had been dealing with the young woman and her parents, proudly exclaimed: “Wow! This is what makes our job so special!” But this uplifting story got me thinking about a new reality facing the market: it was the 17th of January 2011 and Finance Minister Flaherty had just announced new, more restrictive rules governing mortgage financing that would come into effect within 6 months. These measures were put in place with the goal of reducing the debt levels facing most Canadians, especially first-time buyers who were taking out huge mortgages in order to purchase property amidst a booming real-estate market. At first, I wasn’t quite sure what to think. On the one hand I supported measures to protect our economy by preventing too much debt. But on the other hand I thought back to my first real-estate purchase, and the fact that my financial situation back then was precarious at best. It was that first purchase that got me started and allowed me to work my way up to the point where I could buy a new, higher-quality property with a standard, low-risk mortgage. I won’t pretend that everything always went perfectly according to plan; I experienced difficult times, such as mortgage interest rates approaching 20% (where was the Finance Minister back then, eh?), consolidations and even selling quickly just to get out of a tight situation. However, I was never too worried because I knew that I could adapt to market changes just as quickly as I could to my own financial situation, all because I had access to CMHC insured financing. I didn’t have two parents to supervise and support my first purchase, but I did have the CMHC. Even though we all fear shaky financial markets and easy credit, one mustn’t overreact. Many people speak of a real-estate market that has simply grown too hot and must be cooled-down in order to allow prices to readjust. Do we not remember how the baby-boomers have changed every market? Do they not realize that it is now their children, also in large numbers, who are actively looking for their own piece of real-estate? It was no more speculation back in the days of the baby-boomers than it is today. It’s not overheating, it’s demographics; first-time buyers are very important in today’s real-estate market. I see many first-time buyers who are helped by their parents, and many others who only have the CMHC to rely on. To reduce the indebtedness of Canadians, the government would be wise to tackle other pressing issues, such as the expensive cars, credit cards and cellular telephones which are causing unprecedented levels of debt. Those types of expenses do nothing to build equity in one’s life, whereas real-estate does just that. I am not an economist and I lack the distinct knowledge required to properly evaluate such factors as the average household debt level or fluctuations in the real-estate market. But one thing I do know from years of personal experience is that the CMHC is essential for many first-time buyers and young families. I don’t see it as insurance for risky loans but rather as a necessary form of assistance for homeowners. When I look at the unprecedented mortgage abuses going on south of the border and where it has led them, it makes me proud of the conservative lending practices that have characterized Canada for so many years. Hopefully these practices will continue for years to come and never become too conservative, especially for first-time buyers. I recently became aware of certain changes at the CMHC that would appear as though they are determined to become more restrictive in their lending. Not long ago, a bank representative informed me that a buyer who wishes to obtain a loan for a second property must prove that they have at least $100 000 in cash or cashable investments. Of course we understand that those who buy multiple properties are most often investors, and it is they who are always the first ones in trouble in the case of a market readjustment or interest rate change. I’m still waiting to hear more details about these changes and exactly how it will apply to property buyers, but in any case it’s comforting to know that the CMHC is targeting those who are the greatest source of risk to the real-estate market. In January 2012, the CMHC celebrated its 66th anniversary. Whether we take it for granted, ignore it or criticize it, for me the CMHC is the crown jewel of the Canadian economy, one that promises a better future for all Canadians. To learn more about the CMHC, please follow this link. Bob