Risky Business: CMHC CEO Calls Out Lenders Allowing ‘Excessive Household Borrowing’

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Image by Paul Brennan from Pixabay

The CEO of the Canada Mortgage and Housing Corporation is calling on lenders and mortgage default insurers to tighten lending qualification standards and to stop offering so many high-risk mortgages.

Evan Siddall made the statements in a confidential letter written to CMHC-approved lenders and the country’s other two mortgage insurers; however, the contents of the letter were leaked this week, after which, Siddall made the entire letter public on social media.

In the letter, Siddall asked lenders to be stricter about how much money they are willing to lend to fund home purchases, as well as to be more diligent about who they are lending to.

READ: CMHC Forecasting Market Won’t Return to Pre-COVID Levels Until 2022

The letter follows CMHC announcing it would be tightening its underwriting policies for insured mortgages on July 1, by raising the minimum credit scores it will accept, putting a cap on the gross debt ratio for an approved borrower, and banning the use of borrowed money to come up with the down payment.

CMHC implemented these changes on its own, with no requirement for its competitors — Canada Guaranty and Genworth Canada — to do the same. As a result, anyone who didn’t meet CMHC’s higher standards was able to get insurance elsewhere, where standards were lower.

In turn, CMHC experienced a loss in market share as many mortgage deals that no longer qualified for CMHC insurance were being sent to the other two insurers.

“There is no doubt that we have willingly chosen to forego some profitable business that our competitors would find appealing,” Siddall wrote in the letter, adding the CMHC is “approaching a level of minimum market share” required to be able to protect the market in times of crisis.

“While we would prefer that our competitors followed our lead for the good of our economy, they nevertheless remain free to offer insurance to those for whom we would not.”

“Please put our country’s long-term outlook ahead of short-term profitability,” he added.

By not tightening lending standards, Siddall warned that the entire economy could be put at risk.

You can read the full letter below.

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