Posted at 12:00 p.m.
The temporary tightening of underwriting conditions unilaterally decreed in the midst of a pandemic by the Canada Mortgage and Housing Corporation (CMHC) turned out to be a costly blunder, we learn in its latest annual report released on Wednesday.
“The volume of homeowner’s insurance underwritten per unit has decreased due to changes to our underwriting criteria in July 2020,” the document reads.
CMHC experienced a net decline of $200 million in premiums collected, largely attributable to its own decisions. “Unit underwritten homeowner’s insurance and portfolio insurance are entirely responsible for the $207 million (10%) decline in premiums and fees collected,” CMHC said in its report.
This decline came as the Canadian housing market was experiencing its two best years for transactions. According to the Canadian Real Estate Association, there were 668,026 and 552,416 transactions, respectively, in 2021 and 2020. The annual average for the past 10 years is 513,000 transactions.
The Crown corporation acknowledges that the change in strategy in hindsight turned out to be misguided. “The changes we made in 2020 weren’t as effective as we expected. »
In July 2020, CMHC, then headed by Evan Siddall, decided to unilaterally tighten its loan insurance underwriting rules. ” [L’]The goal was to protect homebuyers, reduce risk to government and taxpayers, and promote stability in housing markets while curbing excessive demand and unsustainable price growth. »
The move surprised the market. Private insurers Canada Guaranty and Sagen Canada (formerly Genworth) refused to follow suit.
This resulted in a significant drop in CMHC’s market share. The situation had quickly deteriorated, to the point that Mr. Siddall had taken up his pen to implore Canadian bankers to do business with the Crown corporation rather than with the private sector.
PHOTO GALIT RODAN, BLOOMBERG ARCHIVES
Evan Siddall, former head of Canada Mortgage and Housing Corporation
Remember that it was under the orders of this same Evan Siddall that CMHC dared to predict in the spring of 2020 a drop in house prices of around 6 to 18% over the following 12 months due to the pandemic. Finally, the health crisis had the completely opposite effect, causing an explosion in real estate prices in Canada.
Evan Siddall finally left CMHC in April 2021. He led the organization for seven years.
CMHC corrected the situation in July 2021 by returning to its old underwriting criteria. But the damage was done. “Effective July 5, 2021, we have reinstated the majority of our pre-July 2020 underwriting practices relating to unit homeowner insurance and portfolio insurance, although these volumes have not changed. not immediately regained their normal levels. »