CMHC Responds to Dodge Fears
Canadian Press
OTTAWA — The Canadian market is not about to be flooded with high-risk, cash-poor homeowners despite the concerns raised by Bank of Canada governor David Dodge, a government official insists.
Mr. Dodge raised concerns Thursday about the inflationary impact of a CMHC program that allows homeowners to have an interest-only mortgage insured with no down payment.
Karen Kinsley, Canada Mortgage and Housing Corp.'s president and chief executive officer, assured Mr. Dodge in a meeting on Thursday that the new CMHC insurance will not lead to economic chaos.
Kinsley said there's a misconception that homeowners opting for this type of loan can qualify based only on their ability to meet their monthly interest payments.
Instead, the CMHC program assesses a homeowners' ability to meet both its principle and interest payments, she said.
"This program doesn't change the qualifying criteria,” Kinsley said. “They've got to be able to pay the principle and the interest."
Mr. Dodge raised the possibility of spiralling inflation Thursday when asked about the interest-only loan insurance program. Some economists believe that supporting these loans allows homeowners into the market that would not otherwise be able to afford a home.
By spending money on homes and consumer goods rather than a down payment, some economists suggest the surging demand in the housing market for contractors, supplies and labour will cause dangerous inflation.
"You could make an argument for (inflation)," said Fred Ketchen, director of equities trading at ScotiaMcLeod.
Mr. Ketchen said having money in the housing market that would otherwise be put to down payments could artificially drive up consumer demand in the industry, which will drive up prices.
Ms. Kinsley said the CMHC insurance program is not the same as insurance programs offered elsewhere in the world. In some countries, homeowners can receive mortgage insurance based on their ability to make monthly interest payments. The CMHC qualifying process, Ms. Kinsley said, is more rigorous.
The CMHC is a Crown corporation that aims to make home ownership attainable to more Canadians, including through programs to insure mortgages provided to homeowners through commercial lenders.
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