OTTAWA (Reuters) - Canada’s federal housing agency will stop offering two types of mortgage insurance next month, it announced on Friday in the latest move to curb its ballooning, taxpayer-backed mortgage insurance business and contribute to housing market stability.
Canada Mortgage and Housing Corporation (CMHC) will discontinue its current mortgage loan insurance for borrowers who purchase a second owner-occupied home and for self-employed workers who cannot provide independent validation of their income.
Both products will no longer be available as of May 30.
“As a result of changes to CMHC’s mandate to contribute to the stability of the housing market, benefiting all Canadians, while effectively managing and reducing taxpayers’ exposure to risk, CMHC is undertaking a review of its mortgage loan insurance business,” the agency said in a statement.
“This is the first set of changes resulting from this review,” it said.
CMHC plays a similar role to Fannie Mae and Freddie Mac in the United States and controls about three-quarters of the mortgage insurance market in Canada. Home buyers with a down payment of less than 20 percent are obliged to carry default insurance.
But the government has recently become alarmed at the exponential growth of that insurance business, which it guarantees, and has taken several measures to increase oversight of the agency and make more room for private insurers.
CMHC will now only provide homeowner mortgage loan insurance to one property per borrower at a time. It will also require self-employed home buyers to provide proof of income from a third party, which the agency says is now readily available.
The two mortgage products represented less than 3 percent of CMHC’s total insurance volumes in units.
“Given the limited use of these products, their discontinuation is not expected to have a material impact on the housing market.”
Reporting by Louise Egan; Editing by Bernard Orr