Balancing the Distribution of Risk in Canada’s Housing Finance System:
A Consultation Document on Lender Risk Sharing for Government-Backed Insured Mortgages - Text Versions

Figures 2 and 3

Normal Loss

Lender is responsible for ineligible default costs.

Mortgage insurer is responsible for remaining losses using capital.

Extreme Loss Backed by CMHC

Lender is responsible for ineligible default costs.

Mortgage insurer is responsible for remaining losses using capital. Should the losses exceed the amount of capital held by the insurer, the government will cover the remaining loss.

Extreme Loss Backed by Private Mortgage Insurers

Lender is responsible for ineligible default costs.

Mortgage insurer is responsible for remaining losses using capital. Should the losses exceed the amount of capital held by the insurer, the government will cover the remaining loss minus a 10 per cent deductible.

Under the Proposed Lender Risk Sharing Proposal

All types of loss (normal, extreme backed by CMHC, and extreme backed by private mortgage insurers) would require lenders to bear a modest portion of the loan losses on any defaults.

Return to report figure 2 - Return to report figure 3

Figure 5: Potential Lender Risk Sharing Arrangement

  1. Lender continues to submit full claims to the insurer for insured mortgages in default, throughout the quarter
  2. Insurer continues to pay 100 per cent of eligible claims to lender, throughout the quarter
  3. Securitization investor continues to be protected by 100 per cent mortgage insurance coverage
  4. New under lender risk sharing: At the end of the following quarter, lender returns a portion of claim losses to the insurer

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