Overview: Lender Risk Sharing for Government-Backed Insured Mortgages - Text Versions

Figure 1 and 2

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.

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Figure 3 - Growth in government involvement since mid-1990s

1996

Total Residential Mortgage Credit (TRMC) $342 billion

Government-Backed Insurance-in-Force: 37% of TRMC

2000

TRMC $435 billion

Government-Backed Insurance-in-Force: 50% of TRMC

2007

TRMC $820 billion

Government-Backed Insurance-in-Force: 52% of TRMC

March 2015

TRMC $1,291 billion

Government-Backed Insurance-in-Force: 56% of TRMC

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Figure 4 - Outstanding Canadian Residential Mortgage Credit, as at July 2016

Federally Regulated Lenders

Big 6 banks and other banks and trusts: $1,066 billion or ~76%

Canada's big 6 banks and other small and medium banks and trusts are federally regulated. While insured mortgages are important, the majority of their mortgage lending is for uninsured mortgages.

Provincially Regulated Lenders

Credit unions and caisses populaires: $183 billion or ~13%

Provincially regulated institutions, including most credit unions, have a mix of insured and uninsured mortgages; the majority is uninsured.

Other Lenders

Mortgage finance companies (MFCs)* and mortgage investment corporations and other lenders: $155 billion or ~11%

MFCs are non-deposit-taking institutions that are non-prudentially regulated. They typically fund their lending activities through the sale of mortgage loans to federally regulated financial institutions or through government securitization programs. The majority of their lending is insured.

Other lenders serve a very small market segment and cannot offer insured mortgages. This includes mortgage investment corporations, which are governed by the Income Tax Act.

Source: Residential mortgage credit, outstanding balances of major private institutional lenders, Bank of Canada, monthly (dollars), CANSIM table 176-0069.

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