CMHC helps Canadian to afford a home by insuring their loans. Without mortgage insurers like CMHC or Genworth, a lot of Canadians will still be renting and saving their down payment. A great service – backed by Canadian Government – that helps us to realize our dream of a home ownership.
Drawbacks of insuring mortgages:
There are pros and cons of everything and mortgage insurance is not an expectation to that. By insuring every insurable borrower CMHC makes housing affordable to all of those who otherwise would find it hard to buy a home.
In this process CMHC boosts housing demand and as a result of elevated demand house prices go up – simple economics.
Therefore we can partially blame CMHC for the raising housing prices despite of falling resale activity. At the same time we also understand that this is an occupational hazard and we kinda live with this.
Next popular culprit is low interest rate. We all try to believe that if the interest rate stays this low then house prices will only head north. In US despite of a low interest rate – house prices did not go up. So, the most visible answer may not be the right one.
Problem In the process:
If the house prices are being partially driven by CMHC due to their insurance activity then it is understandable but if their appraisal process or method is flawed then that is a serious oversight.
Globe and Mail reported that it has obtained document which claims that the database used by CMHC is flawed. The database is known as Emili.
Emili looks at the application and the house price mentioned in the application. It then compares various similar sales data and many other factors to come up with the conclusion if the price is fine or more investigation is required. Based on that information the risk in a lending is determined.
Safety nets in the process:
It is not only Emili that looks at the house price in an application but the lenders also employ an army of appraisers who check on the value of the property. CMHC does its due diligence to assess the price of the collateral but a prudent lender does not completely rely on that. They do have their own checkpoints in place to stop this from happening.
If CMHC is wrong then why not MPAC:
Not only CMHC uses market data but also a number of other organizations use similar approach. Municipal Property Assessment Corporation is one of them. Now the question is who will be looking into their databases?
Is it alone CMHC’s job to assess property values?
CMHC uses the property’s worth to calculate risk involved in the lending and to see if they can insure the deal or not. In the buying process a number of other agents are also involved. When they all endorse the price then why CMHC alone should be responsible for the real-estate bubble?
