Canada’s national housing agency will underwrite less mortgage insurance in 2014 amid fears that housing market is overheating.
The government-controlled Canada Mortgage and Housing Corporation (CMHC) said recently that the amount of insurance in force will decline to C$545 billion (US$497.15 billion) in 2014. The amount was C$557 billion (US$508.5 billion) in 2013, down from C$566 billion ($US516.75) in 2012.
Canadian house prices have risen steeply since the 2008 financial crisis. CMHC faces the difficult task of repaying lenders in case borrowers default.
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The number of units CMHC insures annually has fallen 67% from its peak in 2009. Two other private agencies underwriting mortgage insurance are Genworth Canada and Canada Guaranty, but both are still a way behind CMHC which boasts a 60% market share. The CMHC’s market share used to be 80% until a few years ago.
The decline in the amount of insurance in force is the second step within a month that the CMHC has taken to reduce risks.
CMHC stopped offering mortgage insurance to second home buyers, and also self-employed borrowers who fail to submit a third-party income validation.
The Canadian government has taken a slew of measures in the past five years to prevent people from taking on large mortgages. The maximum amortization period was reduced to 25 years from 40 years. Government-backed mortgage insurance is available only for homes with a purchase price of less than $1 million. It is mandatory for home buyers to make a minimum down payment of 5%, and in case the property is not occupied by the owner, the minimum down payment is 20%.
This article was republished with permission from Global Property Guide.