Our national housing agency wants to put your mind at ease, sort of.
CMHC published its annual stress test this week. Its report claimed CMHC would remain solvent barring a catastrophic scenario entailing:
- a 48% home price crash,
- 25% unemployment, and
- no government intervention (full details here).
The report made headlines across the media, as unlikely as some of its doomsday scenarios are.
What’s far more likely, however, is a scenario that CMHC didn’t talk about: market share losses.
CMHC’s market share has skid since July, after it chose to tighten lending criteria while competitors Sagen and Canada Guaranty maintained the status quo.
Thereafter, CEO Evan Siddall wrote what some deemed to be a guilt-trip letter to lenders. Its accusatory tone warned that by sending business to competitors lenders were contributing to CMHC “approaching a level of minimum market share that [it requires] to be able to protect the mortgage market in times of crisis.” Apparently CMHC’s management didn’t expect lenders to reward the insurers that supported their customers.
From the admittedly non-representative sample of lenders we spoke with soon after, their sentiment was that Siddall’s letter alienated much of the mortgage industry — likely encouraging more support of CMHC’s competitors, not less.
Since then, there’s been hints that CMHC’s market share has dropped even further, perhaps below its 40% minimum target. The problem is, no one but insiders really know. It refuses to publish the data, despite being a government agency and despite the risk that (it says) its market share losses present. If that concerns you as someone who indirectly owns this crown corporation—i.e., as a taxpayer—you’re not alone.
“Our financial stability mandate is an important focus of the Corporation,” said spokesperson Len Catling. “To be able to act upon our financial stability mandate, CMHC aims to maintain enough presence to be able to: a) step in to enable financial stability and b) absorb market share if private insurers exit market.”
As if withholding market share data weren’t worry enough, CMHC has also refused to confirm if it stress-tested its resilience against a plunging market share scenario. Catling said the crown corporation “would only speak to the scenarios and results [it] presented publicly…”
That’s concerning, because CMHC’s 5-year plan (pg. 52) anticipates a market share “decline.” And the company clearly has the ability to estimate its own market share. It makes one wonder why it would not be forthcoming with the numbers.
“Competitive reasons” would seem a flimsy excuse for concealing its market position. Its public competitor, Sagen, routinely estimates its market share for analysts. Yet, despite CMHC’s public ownership, much broader housing market mandate and obligation to uphold financial stability, it doesn’t hold itself to that same standard. And that’s notwithstanding its CEO’s very public pledges of transparency.
As a consumer-focused mortgage news site, interest in this story stems mainly from the potential repercussions to borrowers, homeowners and taxpayers. Those repercussions could manifest themselves if CMHC loses too much business and can’t fulfill its mandate, and/or (heaven forbid) seeks a big cash infusion from Ottawa. The health of CMHC matters and Canadians deserve more visibility of its vital signs.
Editorial/opinion content solely reflects the views of the author.