The Canadian Mortgage and Housing Corporation (CMHC) is Canada’s National Housing Agency. It operates on a solid, inspiring mission: to ensure everyone in Canada has a home they can afford and which meets their needs by 2030. With CMHC tools like the First-Time Home Buyer Incentive Program, CMHC Mortgage Insurance and the Mortgage Stress Test, Canadian residents are better equipped to have their housing needs met.
As a Crown Operation, the CMHC although operating independently, still has governmental ties with its board of directors appointed by government entities.
Briefly discussed below are the roles which the CMHC plays in the Canadian Real Estate Market:
CMHC Mortgage Loan Insurance- Homebuyers who make less than 20% down payment on their homes have to buy additional CMHC mortgage insurance. This covers any possible default on mortgage, and the CMHC insurance premium is usually added to mortgage payments.
First-time Home Buyers Incentive (FTHBI)- If you qualify, the CMHC through the First Time Home Buyers Initiative allows the government to pay 5-10% of down payment on your home, in return for an equivalent percentage stake in your home after 25 years or if you sell your home.
CMHC Newcomers Program- Canadian new residents who find it difficult to buy a home due to unestablished creditworthiness often find it hard to qualify for mortgages. With the newcomers program, the CMHC provides alternative means of establishing creditworthiness for newcomers e.g. international credit record etc.
The CMHC is also involved in mortgage stress testing, and funding mortgages to banks or mortgage lenders via the Canada Mortgage Bond Program.
The Canadian government's economic response to Covid-19 has been significant and CMHC is at the forefront of stabilizing the real estate market through this pandemic by setting up the following measures:
Many Canadians have had their monthly income affected due to a reduction in work hours or even job loss as a result of the pandemic. Consequently, mortgage payments are expected to take a hit. To forestall any problems with regular mortgage payments, the Canadian Government via the CMHC has rolled out a mortgage deferral program.
Over a 6-month period, banks and other mortgage lenders can come into agreement with affected homeowners to suspend mortgage payments over a specified period, after which regular payments will resume as per the previous schedule. Although the Mortgage Deferral Program does not erase the amount owed on mortgages and homeowners still have to pay interest accrued during this deferral period, it is still very helpful for people who are struggling to make mortgage payments during this period.
This program is in place for mortgages that are insured by the CMHC, but for those not currently CMHC-insured, individual lenders would have to be contacted to discuss and negotiate available options for mortgage payment.
Another helpful initiative is the Insured Mortgage Purchase Program (IMPP), through which the Government of Canada, through the CMHC, is purchasing $150 billion in mortgage backed securities from banks and mortgage lenders.
With the purchase of these mortgages by the CMHC, financial institutions have increased liquidity and as such, are able to keep lending money to Canadian consumers and businesses. As of March 2020, the CMHC had already bought $5 billion in Mortgage-Backed Securities, with more to follow.
Since eligibility rules for portfolio insurance have been temporarily relaxed, the IMPP has become accessible to more mortgage lenders, who can then lend money to Canadian homebuyers.
With the above impressive measures put in place by the Canadian Mortgage and Housing Corporation, there is a high probability that the residential real estate market in Canada (especially in larger cities in Toronto) won’t be seriously affected. However, smaller cities might feel the effect of the pandemic on the residential real estate market.