The amount of portfolio insurance, which covers mortgages that had a downpayment greater than 20 percent, fell 8 percent to C$227.9 billion ($221 billion) at the end of March compared with the same period last year, Canada Mortgage & Housing Corp. said in the report.
Canada’s government has capped the amount of mortgage insurance the federal housing agency can extend at C$600 billion, pushing lenders to assume more of the risk posed by record household debt levels. Bank of Canada Governor Mark Carney has called consumer debt the biggest domestic risk to the world’s 11th largest economy.
Finance Minister Jim Flaherty said in his March budget that mortgages carrying portfolio insurance would eventually have to be securitized through CMHC. The government said the change was intended to restore “taxpayer-backed portfolio insurance to its original purpose of allowing access to funding for mortgage assets.”
Flaherty tightened rules on insured mortgages for the fourth time in four years in July on concern some regional housing markets were overheating.
By law, Canadian mortgages that have less than a 20 percent downpayment must be insured. CMHC, based in Ottawa, insures most of the nation’s mortgages.
Since the 2008 financial crisis, Canadian lenders have used government-backed insured mortgages to shore up capital in accordance with international standards. CMHC’s insurance is fully backed by the federal government.
The volume of portfolio insurance issued by CMHC in the first three months of the year plunged 98 percent compared with the same period last year, according to the report. CMHC Chief Financial Officer Brian Naish told reporters on a conference call today the decline was a result of lenders requesting “higher-than-normal” levels of portfolio insurance in the first quarter of 2012, after the agency announced it was rationing coverage.
“What you’re seeing now is a decrease due to lenders changing the timing of the takeup of portfolio insurance product,” he said.
The agency said its total mortgage insurance balance was C$562.6 billion, down 1.2 percent compared with the end of March last year.
Revenue dropped 13 percent to C$3.1 billion from the same period last year, while net income decreased 15 percent to C$378 million, CMHC said.
Housing starts will reach 190,300 units this year and 194,100 units next year, the agency said.
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