Federal mortgage insurer walks away from condo developer coverage
Canada Mortgage and Housing Corp., the government-backed mortgage insurer, says it will no longer offer insurance on loans made to condo developers to finance new towers.
The move to axe condo development insurance, announced Friday, is a small but incremental step in a series aimed at limiting the CMHC’s exposure to the mortgage market.
Introduced in 2010 and only offered through 2011, the coverage wasn’t heavily tapped by developers.
“Financing needs for condominium construction are well served by the market place,” the agency said.
But CMHC is still holding $378-million in coverage on condo projects, and critics suggest the product helped incentivize new developments in cities like Toronto where glass towers have invaded the skyline in record numbers.
Condo buyers covered
While the move affects condo builders, the agency said its mortgage insurance for condo buyers isn’t altered by the change.
Introduced after World War II to help returning veterans obtain mortgages to buy homes, the CMHC provides insurance to banks and other lenders. In the event a borrower defaults on their mortgage, the agency will pay the balance owed.
By law, homeowners who put down less than 20 per cent of the price of the home as a down payment must take mortgage insurance, which is added into the cost of the home loan.
Also announced by the CMHC on Friday was the abandonment of coverage on mortgage loans made on homes that cost $1 million or more, starting July 31, even if the buyer has made a deposit of 20 per cent or more.
Lenders can seek to insure home loans that don’t require coverage by law if they so choose, but the CMHC said it’s no longer extending that option to homes valued above $1 million.
The step, alongside the agency’s move to cut coverage for condo financing, is the latest in a series made by the CMHC in recent years to limit its role in the mortgage market place — a role critics suggest has helped fuel soaring property values as banks and other lenders have lent out hundreds of billions of dollars worth of home loans backed by the CMHC, and ultimately Canadian taxpayers.
READ MORE: CMHC assures us, there’s no property bubble
“The changes are a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC,” the agency said in a statement.
The Crown corporation says the changes announced Friday would have affected only about three per cent of the mortgage insurance it provided last year for individual homes.
Here’s how many condo projects were underway in Toronto and other Canadian cities at the start of the year: