Canada Mortgage and Housing Corporation
Encyclopedia
Government of Canada
The Government of Canada, formally Her Majesty's Government, is the system whereby the federation of Canada is administered by a common authority; in Canadian English, the term can mean either the collective set of institutions or specifically the Queen-in-Council...
, 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
Urban renewal
Urban renewal is a program of land redevelopment in areas of moderate to high density urban land use. Renewal has had both successes and failures. Its modern incarnation began in the late 19th century in developed nations and experienced an intense phase in the late 1940s – under the rubric of...
projects in Canada's cities.
Today its main function is providing insurance for residential mortgage loans
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
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 Corporation reports to the Minister of Labour and Housing
Minister of Labour (Canada)
The Minister of Labour is the Minister of the Crown in the Canadian Cabinet who is responsible for setting national labour standards and federal labour dispute mechanisms...
and the board of directors and president are appointed by the Government of Canada.
History
Near the end of World War IIWorld War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, 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
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
veteran
Veteran
A veteran is a person who has had long service or experience in a particular occupation or field; " A veteran of ..."...
s 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
Regent Park
Regent Park is a neighbourhood located in Old Toronto, Ontario, Canada. Regent Park is Canada's oldest and largest social housing project; built in the late 1940s. Formerly the centre of the Cabbagetown neighbourhood, it is bounded by Gerrard Street East to the north, River Street to the east,...
in Toronto
Toronto
Toronto is the provincial capital of Ontario and the largest city in Canada. It is located in Southern Ontario on the northwestern shore of Lake Ontario. A relatively modern city, Toronto's history dates back to the late-18th century, when its land was first purchased by the British monarchy from...
.
In 1954, the federal government changed the National Housing Act
National Housing Act (Canada)
National Housing Act was passed by the Parliament of Canada in 1938 and was intended to promote the construction of new houses, the repair and modernization of existing houses, and the improvement of housing and living conditions. It was later amended in 1985 and 1999....
. 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.
Importance in Canadian public sector
Public sector importance- CMHC is the second largest Crown Corporation after Canada PostCanada PostCanada Post Corporation, known more simply as Canada Post , is the Canadian crown corporation which functions as the country's primary postal operator...
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 sectorPrivate sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
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
Recent developments
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 per cent from 95 per cent 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 per cent 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 per cent. 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 per cent from 90 per cent 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.