Canada Mortgage and Housing Corporation (CMHC) is a Crown corporation of the Government of Canada. Canadian Crown corporations are enterprises owned by the federal Government of Canada, one of Canada’s provincial governments or one of the territorial governments. Crown corporations have a long standing presence in the country and have been instrumental in the formation of the state. They are involved in everything from the distribution, use, and price of certain goods and services to energy development, resource extraction, public transportation, cultural promotion, and property management.
CMHC was founded after World War II to provide housing for returning soldiers. After the war, a serious housing shortage and the return of large numbers of veterans led the government to create the CMHC to promote the development of new housing by offering very low cost mortgages with small down payments and easy terms. It later built and/or funded urban renewal projects in Canada’s cities.
One of the main functions of the CMHC is to manage the federal Mortgage Insurance Fund (MIF), which was introduced in 1954 to provide protection to banks reluctant to enter the mortgage lending market. From Today its main function is managing providing insurance for residential mortgage loans to Canadian home buyers. This insurance protects mortgage lenders against mortgage defaults on mortgages of less than 20% down. Besides mortgage insurance, the agency provides financing to housing projects and renovations, does housing market analysis and funds research into housing design and technologies along with the National Research Council. The mandate of the CMHC, as Canada’s national housing agency, includes facilitating accessibility to a “wide choice of quality, environmentally sustainable, affordable housing solutions.”
The portfolio for the Canada Mortgage and Housing Corporation is held by the Honourable Diane Finley, Minister of Human Resources and Skills Development (2012). Previously the portfolio was held by the Minister of Labour and Housing. The board of directors and president are appointed by the Government of Canada.
Near the end of World War II, the Canadian government began to worry about the demobilization of thousands of soldiers in Europe, and their re-entrance to Canadian society. With so many people coming back to Canada, a number of problems would arise, one being that there may not be enough housing existing to accommodate the soldiers and their desire to have families. The agency was created in 1946 in response to housing demands after the return of World War II veterans and societal changes after the war included a policy that every family in Canada have their own home.
CMHC’s role was to aid in the management and finance of housing projects in Canadian cities. It took over the assets of the Wartime Housing Ltd., that had built thousands of houses during the war. Upon creation, the Corporation was named Central Mortgage and Housing Corporation.
During the war, Ajax, Ontario, was constructed and operated by the Wartime Housing Limited (1941 to 1949) in order to provide much-needed housing for munitions workers and returning veterans. In 1948, CMHC was given responsibility for Ajax. Its biggest challenges in establishing Ajax as a functioning municipality were reimbursing Pickering Township and Ontario County for municipal services provided to Ajax and establishing an official plan for the growing community acceptable to relevant government agencies. After considerable controversy regarding land and water control, the CMHC submitted a successful application to the Ontario Municipal Board in May 1950 making Ajax an improvement district. This was the first step toward municipal status and allowed CMHC to the depart.
In the 1950s and 1960s, CMHC was the agency that approved urban renewal projects for federal funding and managed the housing funds for that purpose. Examples included Regent Park in Toronto.
In 1954, the federal government changed the National Housing Act. The amendment removed the federal government from the direct finance of private housing projects, instead leaving mortgage financing to the banks. The banks began to issue mortgage loans with CMHC underwriting. If the individual receiving the loan went bankrupt then the bank who gave the loan would not lose money, but instead would be reimbursed by the government. As part of CMHC lending and insurance mechanisms, low-risk borrowers would have to pay insurance premiums if they wanted to borrow with small down-payments.
In 1979, the Corporation’s name was changed from Central Mortgage and Housing Corporation to Canada Mortgage and Housing Corporation.
In the 1980s, the federal government withdrew from the financing of public housing projects. CMHC no longer directed funds to municipalities for the building of housing projects. Some government housing funds and mortgage guarantees since then have been provided for individual projects.
Importance in Canadian public sector
Public sector importance
- CMHC is the second largest Crown Corporation after Canada Post in terms of revenue with some $4.6 billion in 2004. It has an annual financial surplus of more than $2 billion.
- CMHC is the largest Crown Corporation in terms of assets with some $26 billion in holdings as of 2008-2009.
CMHC has influenced the development of Canadian housing projects since its post WWII inception.
Influence over housing projects
CMHC provides assistance and guidance to the private sector in the building, design and planning of houses. Thus provincial governments have aligned their housing standards and planning practices along those of CMHC.
CMHC also makes financial loans to cities at lower interest rates for the development of housing projects. Thus, both the cities and provinces in Canada rely on CMHC for the continuation of housing development in the areas under their jurisdiction. This alignment has had a number of influences on Canadian housing in general:
- Development of the policy of every Canadian family having a home.
- Development of a national building code
- Building experimental houses for new and improved building techniques and technology
Canada’s national housing agency, CMHC invested $1.9 billion (2009-2014) for housing and homelessness programs for “homeless people and those at risk of homelessness-low-income Canadians, seniors, people with disabilities, recent immigrants and Aboriginal Canadians” and $2 billion (2009-2011) more towards the construction and renovation of existing social housing units.
By May 2012, the CMHC had approved 272 loans for the full $2 billion available under the Municipal Infrastructure Lending Program (MILP) (2009-2012) which provided low-cost loans to municipalities for housing-related infrastructure projects: “water, wastewater and solid waste services, fire halls and power generation; local transportation infrastructure within or into residential areas, such as roads, bridges and tunnels; and residential sidewalks, lighting, pathways and green space.” Directly and indirectly the program responds to the crisis of affordability of housing in Canada but also to the federal government’s top priority, which is job creation and economic growth.
In February 2010, the Government of Canada announced changes to CMHC mortgage insurance guidelines:
- Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
- Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90% from 95% of the value of their homes. This will help ensure home ownership is a more effective way to save.
- Require a minimum down payment of 20% for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.
In January 2011, the Government of Canada announced changes to CMHC mortgage insurance guidelines:
- Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80%. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
- Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85% from 90% of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
- Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.