IMF urges Ottawa to cut back on mortgage insurance through CMHC

Ottawa should consider phasing out insuring home mortgage through Canada Mortgage and Housing Corp., the International Monetary Fund said Wednesday.[np_storybar title=”According to the IMF, Canada has the most overvalued housing market in the world” link=”https://business.financialpost.com/2013/11/27/according-to-the-imf-canada-has-the-most-overvalued-housing-market-in-the-world/”%5D [/np_storybar]The advice is contained in the IMF’s latest economic report card on Canada, which projects modest economic growth of 2.25% for the country next year.Such a recommendation, surprising from an international financial organization, appears to side with Finance Minister Jim Flaherty, who has recently questioned whether the federal government should be in the business of insuring higher-risk mortgages at all.Some analysts have credited the system for providing much needed confidence in Canada’s housing sector during the 2008-09 crisis, which many believe was sparked by a crisis in the U.S. mortgage market.The IMF concedes that the current system has its advantages for stability. But it says it also exposes the government, or taxpayers, to financial system risks and might distort the market as a whole in favour of mortgages over more productive uses of capital.[np_storybar title=”Homeowners feel the pinch of rising prices, mortgage rates” link=”https://business.financialpost.com/2013/11/27/canadian-homeowners-are-feeling-the-pinch-of-rising-prices-mortgage-rates/”%5DRBC’s latest research on how much income is needed to maintain a home shows that affordability deteriorated over the summer, the second consecutive drop. Find out more [/np_storybar]“We think banks lend too much to mortgages and too little to small and medium enterprises,” Roberto Cardarelli, the IMF mission chief for Canada, told reporters in a briefing in Toronto.“We suspect the fact that banks may benefit from government-backed insurance on mortgages (…) it sort of makes it easier for banks to do mortgages than other kinds of lending which presumably, we think, is going to be more useful for the real economy.”The Washington-based financial institutions said further measures should be considered to “encourage appropriate risk retention by private sector and increase the market share of private mortgage insurers.”It cautioned, however, that if any structural changes are made, they should be gradual to avoid unintended consequences.The IMF report, released Wednesday morning, forecasts that Canada’s economy as a whole will start benefiting next year from a pickup in the U.S. economy, leading to greater demand for Canadian exports and renewed business investment.Read more on the IMF’s forecast for Canada: Bank of Canada can afford to put off rate hike until 2015 read more