CORRECTED-Canada mortgage insurer sees less risk, despite bubble fears

Fri Nov 29, 2013 4:20pm EST
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(Corrects arrears rate for the end of 2012 to 0.35 percent in 5th paragraph)

* Loan-loss provisions dip as economy improves

* 3rd-qtr profit rises, but risks of housing correction remain

* Debate over future of CMHC insurance business

TORONTO, Nov 29 (Reuters) - Canada's housing agency said on Friday it has set aside less money to cover bad mortgages as the economy improves, even though concerns about a housing bubble persist.

The Canada Mortgage and Housing Corp (CMHC) said provisions for claims dropped by C$19 million to C$895 million during the third quarter and were down C$101 million for the first nine months of the year as expectations for bad loans fell.

"We have seen improvement in the economic indicators that underlie all of that, so for example, unemployment has improved and home price inflation, which obviously influences the severity of claims, has improved as well," Brian Naish, CMHC's chief financial officer, said on a conference call.

Lower net claims helped CMHC boost profit by 20 percent in the quarter to C$452 million, and total insurance in force dipped slightly to C$559.8 billion. By law, CMHC is limited to insuring C$600 billion in mortgages.

The strong quarterly showing included an arrears rate of just 0.33 percent, a touch below 0.35 percent at the end of 2012. But it comes as concerns about Canada's robust housing market continued.   Continued...