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CMHC would survive quake but rocked by OFSI

October 27, 2017

The nation’s largest mortgage insurer, Canada Mortgage and Housing Corp. (CMHC) would survive an earthquake and a U.S.-style housing crash, but it was recently rocked by Ottawa’s new mortgage rules.
The housing agency tested the strength of its businesses against several extreme scenarios. It looked at the impact of an earthquake in a major urban centre, a steep drop in the price of oil and a housing correction where unemployment soars along with a fall in house prices of 30 per cent.
CMHC said testing confirmed its mortgage loan insurance and securitization businesses are able to withstand such severe shocks.
But Canada’s mortgage stress test regulations introduced last fall by the Office of the Superintendent of Financial Institutions (OFSI) decreased the size of the CMHC’s business by about 33 per cent year-over-year as of the second quarter 2017.
CMHC’s insured mortgages plunged to 78,607 in the three-month period ended June 30 compared to 117,463 units during the same period a year earlier, the agency said.
Those OFSI mortgage rules will be extended on January 1 to require that all mortgage applicants undergo a stress test to ensure the borrower can still service their loan should interest rates rise or their personal finances fall. The original stress test last year affected only those buyers who were putting down 20 per cent or less as a down payment.
When the new stress test comes in CMHC may be wishing it were dealing with a mere earthquake, mortgage brokers say.
The new mortgage regulations will have a negative affect on the entire housing market, according to Michael Lloyd, a team leader for Dominion Lender Centres.
“It’s going to impact everyone. The market will be effected, which will cause less demand, which will slow prices or maybe even causes prices to come down a bit,” Lloyd said.



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