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Canadian Home Builders' Association Submission in Response to Finance Canada's Finance Canada's 2006 Review of Financial Sector Legislation:
May 24, 2005
The Hon. Ralph Goodale
Minister of Finance
Minister's Office - House of Commons
195 Wellington Street
Ottawa, ON K1A 0A6
This letter is in response to an invitation by the Department of Finance to all financial sector stakeholders and Canadians to make their views known on issues outlined in a consultation document contained in Annex 6 of Budget 2005 (An Effective and Efficient Legislative Framework for the Canadian Financial Services Sector, A Consultation Document for the 2006 Review of Financial Institutions Legislation). This consultation document identifies a number of potential initiatives for the 2006 legislative review of financial institutions legislation.
One of the potential initiatives identified by the Department of Finance addresses residential mortgages exceeding 75 per cent of property value. Specifically, the Annex states that:
"The Government is seeking views on providing more flexibility to residential mortgage lenders and homebuyers by removing the statutory restriction on residential mortgages exceeding 75 per cent of the value of the property."
The Canadian Home Builders' Association strongly opposes the removal of the statutory requirement for mortgage insurance on high-ratio mortgages. The position of the housing industry is based on the following considerations:
- Canada has one of the best mortgage financing systems in the world, as evidenced by the high rates of homeownership and housing affordability enjoyed by Canadians.
- Mortgage insurance is a critical foundation for the mortgage market in Canada. By reducing the risk borne by lenders, mortgage insurance has been instrumental in providing a level of confidence that encourages many different types of lenders, in all parts of Canada, to participate in the mortgage market. This has encouraged vigorous competition – and enhanced affordability for first-time homebuyers.
- By providing stability for lenders, mortgage insurance has encouraged innovation and the development of a wide array of mortgage instruments tailored to the particular needs of individual consumers.
- Mortgage insurance has facilitated the development of a secondary mortgage market which has increased the volume of funds available for mortgage lending – a key factor behind competitive mortgage interest rates in Canada, and an important element in broadening access to homeownership among potential first-time homebuyers.
- The mortgage insurance industry is itself competitive – with both Canada Mortgage and Housing Corporation and Genworth Financial Canada in competition for business. This competition has benefited housing consumers, lending institutions and the housing industry by facilitating the creation of new products such as the low-down payment mortgage, portability of mortgages and mortgage insurance, and speedy approval processes for potential borrowers, as well as reductions in mortgage insurance premiums.
- The home building industry has not called for the removal of the statutory requirement for mortgage insurance for high-ratio loans – nor, to our knowledge, has any other organization connected with the mortgage market or the housing market.
- To our knowledge, there has been no comprehensive analysis of the effects which removal of the statutory requirement for mortgage insurance on high-ratio loans would have on the mortgage market and, in particular, consumers.
- According to the Department of Finance, the proposed removal of the statutory requirement for mortgage insurance for high-ratio loans is expected to provide more "flexibility" to residential mortgage lenders and homebuyers. There is no indication of what the costs or benefits of flexibility would be – or indeed what such flexibility means. There appears to be a presumption that the requirement for mortgage insurance is an impediment to the operation of the mortgage market – in fact, as noted above, it facilitates innovation in mortgage products and services.
For most people, homeownership is the biggest investment in their lives – and a critical foundation for their financial security. As home builders, on the front-line with customers, we know that home buyers benefit from being able to purchase a home in an environment of confidence about the financing they require. Mortgage insurance is a key element in providing this confidence. Thus, the Canadian Home Builders' Association strongly opposes the removal of the statutory requirement for mortgage insurance on high-ratio mortgages.