National Post

Follow Australia by privatizing CMHC
National Post

Buried within a recent International Monetary Fund (IMF) report on the Canadian financial sector is a call for a review of the rules and mechanisms of oversight that govern Canada Housing and Mortgage Corp. (CMHC), the Crown corporation that insures and securitizes mortgages. CMHC controls roughly 70% of the mortgage insurance market. All mortgages with a down payment of 20% or less, as well as loans that are turned into mortgage-backed securities, are required by law to carry insurance.

Australia is unique because government intervention in the mortgage insurance market has been eliminated. Housing Loan Insurance Co. (HLIC) was privatized in 1997 after an inquiry determined that government intervention was distorting the market and delivering few benefits to the public. HLIC was similar to CMHC in that it had private competitors, but was able to maintain a dominant position in the marketplace. It was sold to a private insurer, which now competes in a healthy insurance market.

Despite the lack of government involvement in the market, Australia has higher rates of home ownership than the United States and its mortgage insurers remained profitable throughout the financial downturn. In contrast, Fannie Mae and Freddie Mac — the two government-backed mortgage giants in the U.S. — have cost American taxpayers US$182-billion since being taken into conservatorship in 2008.