CD Howe Institute and CMHC

The CD Howe Institute, a Canadian public policy think tank based in downtown Toronto, has come out with a study on government involvement in the mortgage markets and raises many of the same concerns the blogosphere has been bleeting about with regards to the CMHC and the risks being assumed by taxpayers in the current housing bubble.

The Canadian Federal Government, through its Crown corporation CMHC, hugely dominates Canada’s mortgage insurance market. This means taxpayers of Canada are theoretically on the hook for about half a trillion dollars in mortgage debt.

And the concern is, after having just witnessed a massive collapse of the housing market in the United States, is the risk this poses to the financial security of our nation.

Finn Poschmann, the vice president for research at the C.D. Howe Institute, doesn’t think this is a business the federal government should be taking with taxpayers’ money.

“Private insurers are able to manage such exposures, provided that they are adequately capitalized, prudently managed and regulated, and able to access liquid financial markets,” he argues in above referenced CD Howe study.

Poschmann sees a continuing role for CMHC as a backstop to the lending industry’s own measures to limit and absorb defaults.

This would “limit government policy to its more clearly justifiable economic role – assisting in the managing of undiversifiable risks that markets on their own, in times of financial crisis, may not be able to manage well,” he argued.

“Further, this approach would leave unfettered the ability of the federal government to regulate minimum prudential standards for mortgage lending and insurance.”

Poschmann calls for tighter rules that would put CMHC on a more equal footing with other market participants, and for tweaking the rules for issuing bonds in order to give Canadian institutions better access to low-cost capital in the international market.

Are we about to see a public debate emerge about how and how much Ottawa ought to intrude into the mortgage process?

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