The decision by Canada’s largest mortgage default insurer to provide more information about its portfolio is welcome news in the industry.
Canada Mortgage and Housing Corporation, a Crown corporation that controls a majority of the market, for the first the time released a supplemental section on its quarterly results which lays out significantly more detailed information about its loans.
“The supplement provides meaningful insight into CMHC’s mortgage insurance operations and will provide market participants with data that will allow them to better analyze our activities in the Canadian housing market,” CMHC said in a release on Friday.
Rob McLister, editor of Canadian Mortgage Trends, said the data indicates, for example, that almost two-thirds of typically insured homeowners have a downpayment of less than 10%.
(Those are the numbers for transactional volumes which don’t include portfolio-insured borrowers or borrowers purchasing five or more unit properties.)
“Someone with only 5% down would be left with 88% loan to value after five years of regular mortgage payments,” Mr. McLister said. “With a correction over 10%, many 5%-downers would be left underwater. In other words, it would be difficult or impossible for many to sell their home and generate enough equity to pay off their mortgage, cover expenses and move.”
The changes in the CMHC’s disclosure come after some economists had demanded CMHC share more of its information about the market. Among them was CIBC deputy chief economist Benjamin Tal who published a report suggesting that the lack of market information makes its harder to get an accurate picture of the stability of the market.
“CMHC is in the position to provide important information to the market,” he said in an interview Friday, welcoming the new disclosure.
CMHC has been overhauling its board with a more Bay Street flavor, adding former Wall Street CEO Robert Kelly as its new chairman. One of the first major acts of the new management was to increase fees, something it said was needed to improve capital targets and reduce taxpayer exposure to the market.
Finn Poschmann, vice-president of the C.D. Howe Institute, noted CMHC only started producing quarterly reports in the spring of 2011 and that has already had a positive impact on quantity and quality of information.
“The reports have become incrementally clearer and more complete, and are beginning to look more like a meaningful report from a financial institution,” said Mr. Poschmann.
He noted the results released Friday show that the average credit score of newly originated loans is “nudging” up which means the loan quality is getting better.
“The lenders are reporting delinquency rates that are hugely down from the financial crisis period,” said Mr. Poschmann.
The housing agency said its profit for the first quarter was $406-million, up 7% from a year ago. Its insurance-in-force dropped $2-billion from the fourth quarter to $555-billion.
“The increase in net income is mainly attributable to higher earnings from investments and lower insurance claims expenses, both a result of improved economic conditions,” said CMHC.
CMHC said said the average credit score in its portfolio was 743 in the first quarter while average gross debt service was 26.2% — both signs CMHC says of the strong ability of homeowners to manage debt.
Overall arrears were 0.35% of all mortgages as of March 31, 2014.