But enough may finally be enough — that is, if we’re to read into CEO Evan Siddall’s recent comments.
At CMHC’s annual public meeting Siddall was asked if CMHC had done enough to limit its risk exposure. He responded, “In a word, yes.”
He went on to note that CMHC is “very comfortable” with its reduction of risk and its current level of market share.
While Siddall reinforced that CMHC’s ongoing goal is to “align risk” with its mandate, one gets the distinct impression that any further rule tweaks should be far less impactful than some of its prior rule changes (which included cutting back amortization maximums, reducing maximum LTVs, eliminating products and so on).
By the Numbers…
The insurer’s annual report revealed an array of notable stats. Among them:
- Average insured loan outstanding: $139,221 (as at Dec. 31, 2014)
- Estimated policies in force: ~3.9 million (i.e., $543 billion of insurance in force/$139,221 average loan outstanding)
- Capital to pay claims: Over $16.1 billion ($10.6 billion in reserves + $5.5 billion in unearned premiums)
- Capital position:
343% of OSFI’s required minimum, a big jump from even one year ago (Put
another way, CMHC’s capital to pay claims is about 3% of its mortgage
exposure, double the buffer that Fannie Mae had during the height of the
U.S. bubble…and growing.)
- 2014 Profit: CMHC earned $2.6 billion in 2014 vs. $1.8 billion in 2013, largely due to securities gains
- Earnings for taxpayers: CMHC has contributed $21 billion to government revenues over the last 10 years
CMHC’s insurance-in-force fell 2.5% from $557 billion in 2013 to $543
billion in 2014 (it will likely drop another $10 billion in 2015,
- Arrears: Delinquencies remained at about 0.35% in 2014
- Borrower metrics: The average CMHC-insured homeowner had 46% equity, a 25.8% gross debt service (GDS) ratio and a 745 credit score
CMHC doesn’t publish its actual loss per claim (it really should), but The Globe and Mail reports that its average claim is around $70,000.
On a side note, it’s tempting to point to relatively high home prices in some cities as an extra source of risk. But only 3% of CMHC’s book has an outstanding loan amount over $600,000. Moreover, the U.S. crisis highlighted a phenomenon that was really quite interesting. Freddie Mac statistics showed that the larger the loan, the lower the severity ratio.
Speaking of the U.S., if you hypothetically applied U.S.-housing-crisis-style losses (over 45 cents on the dollar) to CMHC, its average loss per default could exceed $100,000 per paid claim. At that rate, back of the napkin calculations suggest it would take over a 4% default rate to burn through its capital. That’s over four times the all-time high arrears rate at CMHC — almost an unimaginable disaster scenario…from a Canadian perspective, that is.
Sidebar: Siddall stated that there is “no progress” on lender risk sharing to report (e.g., lender insurance deductibles). CMHC continues to evaluate it, however.