What the CMHC Means for You: What It Does and Why It Matters
The Canada Mortgage and Housing Corporation (CMHC) is a federal organization that offers insurance services, housing policy advice, and housing research. It was established in 1946 as a non-profit corporation with the goal of promoting affordable home ownership and accessible rental housing across Canada. While most people have heard of it and understand its role, there may not be a lot of knowledge about what the CMHC does or why it matters. This article will explore what the CMHC does, why it matters, its history, impact on housing affordability, services provided, future outlook, and how you can apply for funding to get your project started if you live in one of their operating regions.
What Does the CMHC do?
The CMHC is a federal Crown corporation that offers Canada-wide insurance services, housing policy advice, and housing research. It was established in 1946 as a non-profit corporation with the goal of promoting affordable home ownership and accessible rental housing across Canada. It does this through the provision of funding for new construction and renovation projects, insurance for lenders in the event of default, research and analysis, and advice for the government on housing policy. The CMHC provides mortgage loan insurance, which helps lenders provide lower interest rates and increased access to mortgage credit for borrowers. It also supports the construction of new housing and maintenance of existing housing stock. It does this by offering financial support in the form of grants or equity investments to housing developers, non-profit organizations, municipalities, and other groups. These funds are provided at below-market rates to encourage the construction of new rental and affordable housing. The CMHC also provides housing data and analysis to inform policy decisions and guide the development of new housing solutions.
Why Does the CMHC Matter?
The CMHC requires its borrowers to take out insurance to protect lenders in the event that they default on their mortgages. It also serves as a backstop in the event of a major housing crisis that would require a government bailout. While many Canadians have criticized the CMHC for increasing housing costs by reducing the availability of mortgage credit and artificially inflating real estate prices, others are quick to point out that it provides needed stability to Canada’s financial system and housing market. So why does the CMHC matter? Well, the organization has a $600-billion mortgage insurance book. If the CMHC were to go bankrupt, lenders would have to be bailed out by the federal government, which would send interest rates skyrocketing. It’s a much better situation for the CMHC to stay in business, but with a much lower amount of insurance. The CMHC’s insurance book is currently $450 billion. That’s a significant reduction, but still enough to cause major problems if the organization were to fail.
History of the CMHC
The CMHC was established in 1946 as a non-profit government organization with the goal of promoting affordable home ownership and accessible rental housing across Canada. In 1974, the CMHC got into the insurance business and began offering mortgage insurance for lenders. In 2008, as the financial crisis loomed, the CMHC agreed to purchase financial assets from banks that were considered too risky to be held on their books because of their exposure to the U.S. subprime mortgage market. By purchasing these assets, the CMHC was essentially bailing out the banks. In 2017, the CMHC shook up the Canadian mortgage market by announcing that it would be reducing the amount of insurance they provide on mortgages. This led to a drop in mortgage rates and a rise in home prices as potential buyers needed to make larger downpayments to purchase a home.
Impact on Housing Affordability
The CMHC has had a significant impact on housing affordability. By reducing the amount of insurance it provides on mortgages, it reduces the amount of risk for lenders. As a result, lenders can require low-risk borrowers (such as those with a 20% down payment) to take on a higher level of risk by paying a higher interest rate. This reduces the amount of money available for low-income and first-time home buyers, and it increases the amount that these buyers must borrow to purchase a home. Since lenders have reduced their appetite for risk, this also makes it harder for low-income and first-time home buyers to get financing from conventional mortgage lenders. The result is higher home prices and less affordable housing.
Services Provided by the CMHC
The CMHC provides mortgage loan insurance, which helps lenders provide lower interest rates and increased access to mortgage credit for borrowers. It also supports the construction of new housing and maintenance of existing housing stock. It does this by offering financial support in the form of grants or equity investments to housing developers, non-profit organizations, municipalities, and other groups. These funds are provided at below-market rates to encourage the construction of new rental and affordable housing. The CMHC also provides housing data and analysis to inform policy decisions and guide the development of new housing solutions. This information includes inventory levels, vacancy rates, and vacancy forecasting. The CMHC can also assist municipalities with short-term emergency assistance and disaster relief in the event of a natural disaster.
Future Outlook
The CMHC faces significant challenges in the future. As many economists and analysts have noted, Canada is facing a major demographic shift and an aging population. This will lead to a drop in construction and renovation activity as the population ages and housing needs shift from construction to maintenance. The CMHC will need to reorient its funding and priorities to account for a drop in demand for funding. This shift will require the CMHC to work with other levels of government and the private sector to find new and creative ways to increase the supply of affordable and accessible housing. The CMHC is also facing increased competition in the mortgage market, as technological innovations are bringing new and alternative lenders to the market. This has the potential to drive down interest rates and reduce the fees that borrowers pay, but it could also force the CMHC to lower its fees and reduce its profit margins.
How to Apply for Funding
The CMHC offers funding for new construction and renovation projects in all Canadian provinces except Quebec. In order to apply for funding, you must first determine if the project qualifies. You can do this by reviewing the CMHC’s eligibility requirements and then completing the appropriate application. The CMHC offers three main types of funding: – Affordable Rental Housing: This funding is for the construction or renovation of affordable rental housing. It is targeted towards non-profit organizations, municipalities, and Indigenous groups and provides low-cost equity investments and/or below-market interest loans. – Affordable Purchase Housing: This funding is for the construction or renovation of affordable housing for first-time homebuyers and provides below-market interest loans. – Green and Energy Efficient Retrofit: This funding is for the renovation of existing homes to make them green and energy efficient and provides low-cost equity investments.
Conclusion
The CMHC is a significant player in the Canadian housing market. By offering insurance and funding to housing developers, it helps to increase the supply of affordable housing and improve the quality of existing residential properties. The future looks bright for the CMHC as it works to meet the challenges of an aging population, increased competition from new technology-driven lenders, and the need to reorient its funding to account for a drop in construction and renovation activity.