Ladies and gentlemen, welcome. Welcome to our witnesses today.
Members of the committee, I hope you enjoyed your week back in the riding. We will continue our discussions of vote 10, referred to the committee on Tuesday, April 25, 2006. We have several witnesses today, in two panels. We'll follow with some committee business thereafter.
I would like to welcome our witnesses. We're sorry that because of the shortness of time, we'll just ask you to give you a brief overview of your positions. That will leave the committee the maximum possible time to make its inquiries of you. I believe we're going to start with Mr. Charles, from AIG United Guaranty Canada.
Mr. Charles, I invite you to make a couple of minutes of comments. You may proceed.
Thank you, sir.
Thank you, Mr. Chairman and honourable members.
My name is Andy Charles. I'm the chief executive officer of AIG United Guaranty Canada. We are part of AIG, one of the world's leading insurers. AIG conducts business in over 130 countries. We've been in Canada since the early 1960s; we currently employ more than 850 Canadians.
Mr. Chairman, we believe that increased competition in mortgage insurance will benefit consumers, financial institutions, and the Canadian economy. At the same time it will make the government-backed insurance system safer by diversifying risk among more participants.
Allow me to highlight a few points. First, AIG has a rock-solid commitment to provide insurance to the entire Canadian market, urban and rural. We intend to provide innovative insurance across all segments.
Second, we are undergoing a rigorous examination process. OSFI is ensuring that we have adequate capitalization to serve the market through all parts of the economic cycle. The requirements for upfront capitalization are stringent, and we will meet them. We are backed by our parent, a company with $800 billion in assets and ranked by Forbes magazine as the fourth-largest corporation in the world.
Third, fostering competition, with well-capitalized insurers creating more choice, will reinforce the strength of our marketplace. New insured mortgages have a value of over $50 billion a year, and the total value of outstanding mortgages is more than $615 billion.
Fourth, as Budget 2006 states clearly, the provisioning change to $200 billion is due to the expansion of the mortgage market, not because another competitor is entering the market. Adding another well-capitalized insurer will diversify the taxpayer's risk.
Finally, increased competition benefits consumers. The entry of the existing private mortgage insurance company generated new products and better service for Canadians. We ask for the same opportunity.
Mr. Chairman, I would like to close with a quotation from a few years ago: “We applaud the government's intention to promote competition in mortgage insurance by levelling the playing field. Healthy competition clearly benefits consumers, lenders, and taxpayers.”
The speaker then was Peter Vukanovich, the president of Genworth Financial Canada. We applaud his sentiments and think what was true then is true today.
Thank you, Mr. Chairman.
: Merci, monsieur le président et mesdames et messieurs.
My name is Jim Murphy. I'm the senior director of the Canadian Institute of Mortgage Brokers and Lenders, or CIMBL, which is an 8700-member national association.
CIMBL represents all facets of the mortgage industry including mortgage lenders, mortgage insurers, mortgage brokers, and mortgage agents. We have members in all ten provinces and two of the territories.
You know that the residential real estate market in Canada has done exceptionally well over the last several years. Our industry is a key component of helping Canadians reach their dream of home ownership.
Two studies we have undertaken--one from last fall on the state of the residential mortgage market in Canada, and a second one from earlier this spring highlighting consumer choices in mortgages--show that there is over $615 billion in outstanding mortgage credit in Canada today, and that this total is growing by 10% each and every year. You have copies of these research findings in the packages before you.
Mortgage insurance is a key component of the financial network that helps Canadians own their own home. It is a system that has worked well in Canada. As home prices rise, the ability of many Canadians to have a down payment of 25% or less diminishes. And I should say that this rule applies to federally incorporated deposit-taking institutions under the Bank Act. Our industry and mortgage insurance provide the means for Canadians to own a home.
CIMBL supports competition in the mortgage insurance marketplace. We believe, however, that the committee and the government should be fully aware of the issues related to competition, so that the overall financial integrity of the system is maintained.
I'd like to highlight three issues.
First, there should be a level playing field for mortgage insurance providers in the country. Second, the financial viability of the industry must be insured, particularly if there is any downturn in the market--and we're noticing a slowdown in a couple of the provinces. Last, protection for borrowers and home owners must be paramount.
Hi. My name is Peter Vukanovich. I'm the President and CEO of Genworth Financial here in Canada.
I would like to thank the committee for having invited me here today.
Given I've only got a couple of minutes, I'll try to quickly take you through my points.
The proposed changes to the mortgage insurance industry before this committee may appear to be technical, but they are no small matter. Collectively, they result in the opening of the mortgage insurance marketplace to new entrants, something that's not been seen in our country since 1995. Indeed, they represent significant policy changes to the industry, with far-reaching consequences for Canada's housing market, our financial services sector, and, more importantly, the nearly half a million families per year who get helped by mortgage insurance. Yet there's been virtually no study or analysis that we've seen regarding the practical consequences that these dramatic changes would create.
These changes will hasten the arrival of at least three new players in the marketplace, which has been exceptionally well provided by and served by two players for more than 40 years. To compete, all of these players will be financially guaranteed by the government. This is significantly more complex than letting property and casualty insurance companies into a marketplace. As such, we believe the best advice that we can give this committee is to halt the implementation of these changes and study them. Take the time to understand exactly what it will mean for families looking to buy a home and for the government.
There's one critical thing I'd like explain to you today: it's that homebuyers pay for mortgage insurance but they do not choose the insurer. That's right, it's the lender, not the buyer, who controls the decision over mortgage insurance. That distinction is fundamental for policy-makers to appreciate because it demands that a proportionate set of protections be put in place for homebuyers. I should hasten to add that Genworth Financial supports the government's desire to see increased competition within our sector. We welcome more competition, so long as it results in choice and benefits to homebuyers and companies can sustain volatile real estate cycles.
Increased competition, however, must be accompanied by two further conditions: the kinds of homebuyer protections I just mentioned and a level playing field for new entrants and old players alike. Unfortunately, the policy changes before this committee fail to deliver on either of these conditions and in fact could worsen the framework that currently exists. Without proper market conduct rules, the government's objectives could be undermined and existing public policies and benefits of mortgage insurance could be diminished.
That's why further understanding is required before changes are implemented, and we urge you to require three additional safeguards along with what we're talking about. The first one is for this committee to recommend prohibiting U.S.-style financial arrangements between insurers and lenders. There's ample evidence from other markets that without a prohibition of this sort homebuyers will not be the beneficiary of new competition but it will be quite the opposite. As Moody's rating agency states about the U.S. industry, mortgage insurance is a commodity, differentiating oneself from other competitors is difficult, there's limited competition on the price, and lenders' interests are likely to remain aligned with the mortgage insurance firms. These types of arrangements make the amount of money, that percentage to lenders, the key determinant of mortgage insurance. Of course, this is all legal, but we're just not sure that's what this committee or this government is expecting.
Second, in terms of safeguards, we believe the committee should recommend clear protection against adverse selection, or what is sometimes known in the insurance business as cherry-picking. Simply put, if new market entrants are allowed to ignore most of the market and focus exclusively on the most lucrative parts, then all buyers and lenders will pay more. To add much more rigour to this analysis, we've engaged an internationally prominent consultant and economist to conduct the kind of independent study we believe is required. His full analysis is not concluded yet, but he's saying that he would very much like to get this done in the next couple of weeks and have it ready for your perusal.
Finally, we believe the committee should recommend a level playing field for all participants. As you know, the government guarantee backing up the mortgage insurance industry is unevenly applied between us and the government provider. This creates a permanent price advantage of several hundred dollars per loan, which in a highly competitive mortgage business is one very fat thumb on the scale. With a built-in price advantage, competition based on differentiated products and services is very difficult to achieve.
In conclusion, I want to emphasize Genworth's support for increased competition. We welcome it. However, I cannot honestly say that I'm enthusiastic about the prospects for homebuyers if the current proposals proceed without the additional protections that I just told you about.
Canada's housing market is the envy of the world and there's no reason why it shouldn't continue to be, provided that we don't make a mistake or a series of mistakes that we'll regret later.
Thank you. I would be happy to answer any questions you may have.
My name is Mark Tonnesen and I'm the CEO for Triad Guaranty Insurance Corporation. Prior to joining Triad I was vice-chairman of RBC Insurance in Toronto.
Triad is a private mortgage insurance company, headquartered in the United States, and is currently before OSFI with a draft application to provide this insurance in Canada. It was founded in 1987, based on the philosophy of strong risk management, product innovation, and superior customer service. Our products are primarily offered in areas where affordable housing is a priority. In fact, our typical customer is a first-time homebuyer with an average house price of around $150,000.
I am here to support the government's intention to open this market to more providers. This move will create upsides for taxpayers and consumers alike. First, adding more market participants will reduce the risk to taxpayers and increase the stability of the housing market by spreading the risk across multiple providers; reducing the risk assumed by government providers; bringing additional diversified capital into the market; and eliminating the risk where one private mortgage insurance company could pull out of the market, leaving the entire Canadian housing sector in turmoil.
Second, consumers will benefit from increased competition, through better service, lower costs, and product innovation, all of which makes home ownership more affordable. Monopolies, even duopolies, do not provide the same incentives for customer service, product innovation, and price reduction. Why would they, when theirs is a captive market?
Canada has among the highest regulatory standards in the world, and because of this, a competitive market will also be a secure market. Apart from the very rigorous review that OSFI conducts to ensure the viability of MI providers, every province regulates the conduct of the insurance market. Numerous regulations specifically prohibit the types of activities about which some members and competitors are concerned.
It is vitally important for the government to ensure the safety of the market. It is also important to ensure that consumers have a choice, and the choice is not simply between the government and a private sector monopoly. This creates too much risk for the government and too little benefit for the consumer.
I'd be pleased to address any of the issues in more depth at your convenience, Mr. Chairman.
Thank you, Mr. Chairman.
My name is Noël Roy and I am responsible for the development of Desjardins' mortgage financing product. I would first like to thank the finance committee for their invitation to appear this afternoon.
With some 5.5 million owner- members, consumers and businesses alike, Desjardins is the leading financial institution in Quebec as well as the largest cooperative financial group in Canada. Elsewhere in Canada, Desjardins is associated with caisses populaires in Ontario, Manitoba, and New Brunswick, as well as with Desjardins Credit Union in Ontario. With a market share approaching 40 per cent, Desjardins is by far Quebec's leader in the residential mortgage credit market. As such, Desjardins has approved approximately 600,000 mortgage loans throughout all regions of Quebec. Close to 30 per cent of our mortgage loans portfolio benefits from a mortgage insurance protection, mainly with the CMHC and to a lesser extent, Genworth Financial. We enjoy excellent relationships with both entities.
As noted in the 2006 budget, the current government program which provides a government guarantee for companies that ensure mortgage loans has contributed to a competitive mortgage insurance market and more affordable housing for Canadians.
We support the government's initiative to encourage competition in the mortgage insurance market. Increased competition in this market will promote greater housing accessibility at more competitive costs. We therefore believe that extending the guarantee program to new entrants will allow a greater number of Canadians to enjoy home ownership.
However, we believe that the following conditions are key to the establishment of a sound competitive mortgage insurance market. First, all participants from the private sector offering mortgage insurance must be subject to the same rules and conditions and must only be allowed to intervene in this particular market. Real competition will only occur if all players operate on a level-playing field. Second, it is critical that mortgages not be subject to an anti-selection process. Such an approach would disadvantage home owners outside urban areas and more particularly rural residents. The framework governing the activities of such entities must therefore ensure that all mortgages will have an equal right to a guarantee.
In conclusion, we wish to reiterate our support to initiatives that encourage more competition in the mortgage insurance market. Thank you again for the opportunity to appear before you today.
Thank you, Mr. Chair. I'll probably need less time than that.
Basically, I'm starting out favourably disposed to what the government wishes to do, because it's also what our government had wished to do. I just discovered recently that we had the same process as well as the same substance. But perhaps more fundamentally, I tend to be on the side of Adam Smith, thinking that more competition is better than less competition and that a duopoly is probably not optimal.
I basically have two questions. The first would be to either Mr. Charles or Mr. Tonnesen, I think, or to Monsieur Roy.
Since I begin with a bias very much in favour of what the government is proposing, I think the onus of proof is on the other side. In the Desjardins submission, one of the conditions given, the second one, is that it is critical that mortgages not be subject to an anti-selection process that would disadvantage home owners outside urban areas, and more particularly rural residents. So I'd like to ask those who propose to enter the competition to explain whether there would be such an anti-selection process and whether there would be any risk for rural people in this new, multi-company, competitive world?
I also have a question for Mr. Vukanovich. I'm not making any accusations—I must stress that—but I think it was Mr. Turner who really pushed this, and then when I read on Mr. Turner's website of March 19 about his friend Peter Vukanovich coming to visit him a few days ago in his riding office, and since he seems to be instigating this, I want to ask what the nature of that relationship is, just for the record and without making any accusations.
Those are my two questions, Mr. Chair.
Thank you, Mr. Chairman.
When I was listening to Mr. Vukanovich, I had the feeling I was listening to Bell Canada executives a few years ago, when they appeared before the CRTC on the issues of a decompartmentalization project and a long-distance deregulation project. Bell Canada stated that this would spell its demise and that it should not be allowed, that competition in the telephone industry was not a good thing. I have the impression I was hearing the exact same statements from Mr. Vukanovich.
I'm wondering why companies like Genworth and the CMHC should be the only two players. Why shouldn't there be other players? Why are you asking questions about such basic issues as having rules that apply to everybody? I don't think that the bill would result in new competitors being treated differently than Genworth is, or in Genworth being treated any differently from new competitors. It strikes me that competition is a good thing for consumers.
Mr. Roy, how can we avoid the type of anti-selection that you mentioned through regulation? It seems to me that is a fairly simple issue to regulate. It's easy to do an analysis. Competition is always a good thing for the market. Obviously, companies who have held certain privileges for many years — in a duopoly or, of even greater concern, in a monopoly — would want to complicate that type of legislative process. Mr. Vukanovich, one can't be for and against competition at the same time.
I'd like to answer that question.
We're totally for competition, as I said in my comments, as well as I think it's very reasonable that, as a general economic principle, more competition should lead to better things for homebuyers.
The current issue, though, is that there's nothing in the regulatory framework to ensure that adverse selection not be happening, to ensure that there's competition that will benefit homebuyers.
What we're saying is that you really need to look at other markets and how they've operated when there's a financial intermediary in the process, and that means that this is different from just having a direct consumer relationship, because, after all, it's the government's intent to provide benefits to homebuyers and consumers.
So again, I think it's more the regulatory framework that's not set up. It's certainly nothing that we can see to ensure that what we're talking about as being positive would be there. But we're clearly pro-competition.
Okay, so I just want to make it clear that two of the witnesses at least I know very well. And Jim, I think we've been acquainted as well, so we certainly have dealt professionally in the past.
Now, one of the reasons we're here.... Mr. McCallum has suggested that maybe it's because of my relationship with some of the witnesses. I'd like to just point this out. I think we're here because today, with the real estate market where we are in this country, and with real estate prices hitting the highest ever.... And now with 50% of all the people taking out mortgages in this country having to take out high-ratio mortgages, they are involved in the necessity to get mortgage insurance. That's probably 90% of the people in my riding right now who are buying new homes. They are probably requiring mortgage insurance. Because the Government of Canada, by law, requires that all these people with high-ratio mortgages have to take mortgage insurance, this is an important issue.
That's why I'm here and that's why I tried to get this committee to understand that, and they did in a heartbeat.
So you're here because of these issues. These issues go to the matter of the consumers. And that's what I really want to focus on--not their side and our side, or where the government is at; I just truly want to try to drill down right now to what's going to be in the best interests of consumers.
Certainly Mr. Charles and Mr. Vukanovich have different views of this, and Mr. Murphy, you're somewhat in the middle of it.
I would ask you specifically, Mr. Charles, to address a couple of the concerns, and then Mr. Vukanovich the other way around.
Mr. Charles, let's talk about these two concerns that Mr. Vukanovich is raising. First, are we going to see U.S.-style inducements if we allow more competition into the industry? In other words, will there be kickbacks or premiums of some kind paid back to the financial institution for giving you the insurance business?
And secondly, what stops you from just going after those high-income people in my riding, as opposed to the poor folks in some other poorer community? Can you answer that first for me, please?
Mr. Turner, we have introduced the products in 2006 to address exactly the segments of the marketplace that Mr. Charles just mentioned, whether it's people new to Canada, whether it's people with less than perfect credit, or whether it's people in business for themselves. Those are all products that we've launched.
I think there are always opportunities to make a broader, better product.
I think also there is a level of agreement here--that is, if there is to be no adverse selection and there is to be a 100% level playing field and there are to be safeguards in place to prevent inducements, then let's just make sure they're there.
If Mr. Charles and his company and other competitors are willing to compete on that basis, all I'm saying is make sure that's in the legislation before they enter the marketplace.
Thank you, Mr. Chairperson.
First I want to thank John McCallum for reminding us why we're here--that is, the Conservatives are just trying to emulate the Liberals every chance they get. It's increasingly hard to tell the difference. I also think it's worth while to try to put this in context.
When did this whole area get opened up by the Liberals? If I'm not mistaken, it was in 1995. Nobody knows why exactly, except that Paul Martin was Minister of Finance at the time and decided it would be important to give some business to the private sector that wasn't otherwise in their hands. I think Genworth was the lucky recipient. Maybe the question that should be asked today is what do Paul Martin and Peter Vukanovich have in common?
I'm interested in this whole question of how this is going to open up competition. I'm surprised that Yvon Loubier is getting caught up in this as well. If we all look back and see what has happened in areas where deregulation has occurred, and how consumers were going to benefit from all this competition, I don't think we have to look any further than Air Canada. If anyone can tell me how we're better off today with all this competition, please let me know. We're now down to no meals and very poor service, in many cases. I'm just not sure what the benefits are on that front.
I'd like all of you to explain to me what's going to happen to consumers who are at the low end of the income scale to begin with, because we're looking at those who don't have the down payments and need mortgage insurance. I haven't heard of any study that says there is some problem with thousands and thousands of Canadians not being able to access mortgage insurance. I haven't heard people say this is too expensive and out of reach.
I need to hear what studies exist that show that consumers are not being served now. I'd like to know from each one of you--all of those people who want a piece of the pie--how much cheaper you're going to offer mortgage insurance than is the case now, and who you're going to cover who isn't covered now.
Thank you very much for your questions.
I'd like to give you a little bit of background on the origins of our company. We started in 1995, but the private sector has been a player in the mortgage insurance market since the early 1960s. Four companies got into the competition, which included CMHC at the time, and they all consolidated by the end of the 1960s, early 1970s, into one company called the Mortgage Insurance Company of Canada. As a result of the competition that had gone on and the volatile real estate cycles, the marketplace was not large enough to support more than the two companies.
In the early 1990s, the Mortgage Insurance Company of Canada exited the marketplace and left CMHC as the monopoly player. So when GE Genworth, now Genworth, came into the marketplace, it was because the government wanted to have more competition.
No, I'm not saying that.
I'm saying that a lot has happened since 1995, a lot has happened. There have been very high switching costs and very high start-up costs, and the relationships that we currently have in place are very deep. For these folks to change those relationships with lenders, they're going to have to work very hard to come up with something new. I'm interested, as you are, to hear what that would be.
At the same time, we believe the Canadian marketplace in general has been very well served. We want to make sure that we don't end up in a destructive type of environment, where new players start coming in and creating an environment that's not positive for homebuyers. That's why we're requesting the legislation.
Thank you for the question.
By definition, when coming into an established marketplace, one needs to compete on a number of different factors of product, innovation, and price. While I'm not in a position, with my competitors being in the room, to say the price is going to change by x percent, I can give you a very comfortable level, being on the public record today. Price is going to be something that is going to be decreasing, and we will compete on price to some degree.
To your second question, on how this will help Canadians, we've spoken a little about the immigrant market, the self-employed market, and people who may have had a credit impairment in the past. The lending process in this country, and I've been on the lending side for the last 15 years, still requires a lot of due diligence; due diligence is done by the lender, and due diligence is done by the insurer. We think there are opportunities to increase home ownership and the rate of home ownership in Canada.
Well, I know there are problems in terms of people accessing mortgages. There are problems at the lending level. I don't understand how your getting into this business in terms of mortgage insurance is going to have any bearing on the lending scene.
I keep hearing this jargon around product. I don't know what “product” means. I've had this discussion with many others.
If the problem is in fact with the lender, we should fix the problem at that end. I don't see how your coming onto the scene is actually going to put pressure on the banks to suddenly lend to an immigrant family that doesn't believe in using credit cards and therefore has no credit record and can't get a mortgage. They'd like to give straight upfront cash and could probably do the whole house, or most of it, in straight-up cash, but they don't get to deal with the banks. How are you going to make that—
Thank you, Mr. Chairman.
I might actually come back to Ms. Wasylycia-Leis' question, not the socialistic rant part, but what I thought was a reasonable question at the end.
The first question is this. On the off chance that there might be a Canadian out there who doesn't make study of mortgage insurance his or her life mission, Mr. Vukanovich, can you tell me how mortgage insurance is chosen? It's the lender who chooses it, not the consumer. Is that correct?
We start with the mission of our company: the way we think about it is that we provide solutions for those who are trying to make home ownership a reality. In this country, that would be the financial institutions, the credit unions, the caisses, etc. Our view is that we should focus on the things we focused on for the last 18 years--that is, prudent risk management, making sure that the people who do get mortgages can afford the mortgages they have taken on; product innovation, to make sure that the greatest variety of payment plans could be supported by the banks; and superior customer service, in making access to these products easier for all Canadians. We believe this provides the type of value the committee is searching for.
Perhaps I could just outline a few of these items as we see them.
Number one is that we think cost structures for mortgage insurance can be customized better than they are today for borrowers--for instance, standard annual premiums that would allow larger amounts to be paid by the borrowers; single premiums; monthly premiums; deferred monthly premiums; lender-paid mortgage insurance; lender-paid singles. These are the types of products that could become available. One of the things we would have to do in order to do that is work with the financial institutions to try to broaden their product lines, and that would be our intention.
We think making home ownership a greater reality for more Canadians is still possible despite the facts that have just been laid out for both lower- and middle-income earners. We think there's the opportunity for increased loan-to-value options, expanded term options, and loan-type options.
Finally, we believe the consumers can also benefit by increased convenience in service. InterBase mortgage insurance applications can be improved in Canada, as well as the information that's provided to consumers through the Internet or other sources about the type of coverage that these products provide.
So we think that as we begin to work with the lenders and consumers in Canada, we will find ways to compete. Absent that, it is our complete understanding that we will not be competitive and therefore not be able to participate in the Canadian market.
I'm going to certainly thank the gentlemen for being here today and jump right into some questions.
Mr. Vukanovich, one of the things you spoke to fairly well is the process that you were involved in or the system upon which you entered into the market. You seem to be concerned about moving forward with respect to regulations and how the system would work now.
Could you clarify for me, if the system the minister implemented were to be different from the one that you came in under.... I'm assuming you thought the one you came in under was a pretty rigorous and fulsome regulatory process.
I have a further question for Mr. Roy, actually. I'm not going to say that you're all here for a biased reason, but as a lender, you're here, obviously, for a different purpose in terms of expanding in the market. One of the things you commented on in your remarks is that the market would promote greater housing accessibility at more competitive costs. Could you expand on that a little bit in terms of...?
I know that Ms. Wasylycia-Leis spoke about the fact that a number of citizens may be served already. I would assume that as a lender--an unbiased lender--you're here today to speak to what is good for the folks who come in to your bank and do business with you.
The more players there are on the market, the more the lenders will be able to develop products that will have to be offered at competitive prices and that is something consumers will benefit from.
I gave you the example of a shared-risk product that we developed with Genworth and that led to the consumer benefiting from in terms of a 40 per cent premium reduction. Our involvement with the CMHC is mainly confined to the rental market, and it gives us the opportunity of offering better interest rates to those borrowers who have insurance.
If there were a third or a fourth entrant on the market, then perhaps we could develop other products. The problem is that when there are only two insurers, the same product is offered by both at the same prices and under the same conditions. This situation limits us as lenders in terms of the number of products we can develop.
From the perspective of how it works, some lenders control the decisions centrally, sir; for other lenders, it's decentralized. It could be a branch manager, it could be a mortgage specialist, or it could be a mortgage broker. Whoever puts out the product that makes sense for that particular clientele is where the value proposition would be.
If I may, an earlier question came up about the value of additional competition. If we go back in history, at one time CMHC would have had 100% of the market; by virtue of competition, Genworth is now at 30%.
Speaking for AIG United Guaranty, it's our belief that new players will need to work hard and will need to be innovative, but at the end of the day we expect to be successful.
Welcome to our second panellists. Thank you for making yourselves available today.
We'll begin with Madam Kinsley of Canada Mortgage and Housing Corporation, with just a couple of minutes of introductory comments, please.
You've seen the format already. I apologize for the rapidity of it, but I invite you to make your comments. Thank you.
Thank you, Mr. Chairman and committee members.
I am Karen Kinsley from the Canada Mortgage and Housing Corporation. CMHC, as it's most commonly known, was as many of you know founded sixty years ago and has a public policy mandate to improve housing and living conditions for all Canadians.
In the area of mortgage insurance, our public policy objective was and remains to facilitate access to mortgage insurance for all Canadians, regardless of where they live and at the lowest possible cost.
In 1996 we were asked to deliver this public mandate in a commercial manner, and I'm pleased to report that in terms of public policy benefits, over one-third of CHMC's mortgage insurance approvals each year are in areas that are not served, or not well served, by the private sector. We have also led the industry in reducing costs and in product innovation. In terms of our commercial performance we are now profitable and have been able to meet our target for capital reserves. The industry is also flourishing and is now drawing the interest of new entrants into the marketplace.
I'm here to address your questions on vote 10 specifically with respect to the government guarantee of private mortgage insurers. I thought perhaps some context would be useful in your deliberations.
As part of the process of levelling the playing field between public and private mortgage insurers, the government took two significant steps, in our view. The first was, as I mentioned, to require CMHC to follow commercial practices in the operation of its mortgage insurance program. The second was to give the private sector a government guarantee equal to CMHC's, with a 10% adjustment to reflect the fact that CMHC accepts risks in areas and at levels not borne by the private sector.
In closing, Mr. Chairman, we believe in the value of competition where it improves access and affordability for Canadians through both good and bad economic cycles. Healthy competition amongst all suppliers, together with a public sector insurer that also makes sure the gaps left by the private sector are addressed has, I believe, made the Canadian housing system the envy of the world.
I would be happy to answer any questions you may have.
Thank you very much, Mr. Chairman and committee members. I'm here to represent the views of the Canadian Home Builders' Association.
Canada has one of the best mortgage systems in the world, if not the best, as evidenced by the high rate of home ownership and high levels of ownership affordability and accessibility enjoyed by Canadians. Mortgage insurance is a critical foundation for the mortgage market in Canada. This is recognized by the federal government. The federal government's guarantee for mortgage insurers reflects its commitment to a mortgage insurance system that supports affordability and accessibility for all Canadians. In effect, the guarantee recognizes that mortgage insurance supports important public policy objectives with respect to home ownership.
The mortgage insurance environment is highly competitive, with both Canada Mortgage and Housing Corporation and Genworth Financial Canada in competition. This competition has benefited housing consumers, lending institutions, and the housing industry by facilitating the creation of a wide range of new products, including low down payment mortgages, portability of mortgages and mortgage insurance, reductions in mortgage insurance premiums, and so on. In short, our present competitive mortgage insurance environment works extremely well for Canadian home buyers in all parts of Canada. The Canadian Home Builders' Association wants to see the continuation of this environment, one that is innovative and produces benefits for home buyers. To this end, the entry of new mortgage insurance providers into the mortgage insurance market is a welcome prospect, as is the extension of the federal government's guarantee to these entrants.
In order to ensure that home buyers benefit from an expanded mortgage insurance market, the Canadian Home Builders' Association strongly recommends that the following conditions be laid down by the government. First, the level of guarantee should depend on the extent to which the insurer provides the same coverage and premium to all home buyers across Canada. Second, the public mortgage insurer, CMHC, should meet the same corporate governance rules for transparency and accountability and follow the same operating principles that apply to private commercial enterprise. Third, competition in the mortgage insurance market should be based on the mortgage insurance product and not on allowances, rebates, or other similar incentives to the mortgage lender.
Thank you very much, Mr. Chairman.
Thank you to all the committee members for inviting the Canadian Real Estate Association to appear before you today.
As you know, our membership is composed of more than 85,000 realtors who represent and advise Canadians on the purchase and sale of real estate. Last year our members sold more than 483,000 homes across the country.
Realtors believe that the Canadian market is generally well served by the presence of two mortgage insurers. Our association believes that both CMHC and Genworth do an excellent job of serving the needs of Canadian homebuyers, particularly first-time buyers and those individuals in the secondary market who would otherwise find difficulty in obtaining mortgage financing. I am also pleased to report that our industry has an excellent working relationship with both insurers and continues to work collaboratively with them to serve the needs of our customers.
As a whole, realtors believe that the current premiums are price competitive and feel it is critically important that all geographic markets and income strata continue to be served. This being said, we understand the task before you today is to gather more information to help assess whether the federal government should proceed in altering the existing system by allowing new insurers to enter the Canadian market.
Realtors fully support competition and believe that new entrants will undoubtedly bring benefits to certain segments of our marketplace. As such, we would welcome new entrants into our mortgage insurance market. In addition to bringing price competitiveness to lower-risk customers in the high-ratio market, our membership expects that new players would provide product and service innovations where gaps currently exist. For example, we will be looking to four firms to make mortgage insurance more accessible for investment and commercial transactions.
We also believe that if a policy decision is taken to permit market access, this should be done as quickly as possible and without any undue delays. At the same time, we also have some concerns. We believe that any decision taken must never weaken the soundness of our system nor make it more difficult for mortgage insurance to be obtained, irrespective of region or income strata.
Observers often point to the U.S. experience as an example of success. This is undoubtedly true. However, there are also some problems with their system. We feel it is important for market entrants to serve as many Canadian homebuyers as possible, not just the wealthiest or those living in urban centres.
The issue of government guarantee has also been raised. Realtors understand that the public mandate of CMHC is to provide an affordable and competitive mortgage insurance product for those Canadians who need it, particularly to markets that are not necessarily the most attractive or profitable. Realtors strongly believe that affordable home ownership is a public good and that the federal government must not withdraw from the housing policy arena. For this reason, we believe that the crown corporation must continue to receive a full 100% guarantee.
We also recognize that private sector firms operate under different constraints and should be treated accordingly. For this reason, we feel that the current 90% guarantee is reasonable and should be available to new market entrants as well.
Thank you again for the opportunity to speak before you. I will be happy to answer any questions you might have.
Good afternoon and bonjour, Mr. Chair, members of the committee.
I am David Liu, vice-president of international markets of the PMI Group Inc. Founded in 1972, and based in California, the PMI Group Inc., through its operating subsidiaries, is one of the largest providers of mortgage insurance, reinsurance, and related credit enhancement products in the United States, Australia, New Zealand, Hong Kong, and throughout the European Union.
PMI has filed an application with the Office of the Superintendent of Financial Institutions, OSFI, for a licence to write mortgage insurance in Canada. Upon receiving regulatory approval, we plan to establish a mortgage insurance subsidiary in Canada. We believe our experience in the United States and worldwide qualifies us to speak to the merits of the government's proposal.
Mortgage insurance increases borrower reach by enabling approval of customers who might not typically qualify for a mortgage. Key consumer segments touched by improved lender reach in particular include first-time homebuyers, the self-employed, new immigrants, and consumers with credit blemishes. Increasing borrower reach is especially important given the affordability challenges that today's housing markets present to aspiring homeowners in Canada.
Mortgage insurance can also provide multiple benefits to financial institutions. These benefits include risk transfer, regulatory compliance and capital relief, market expansion, underwriting review, and capital markets access.These lender benefits typically extend to smaller regional lenders and credit unions, as well as to the traditional banking institutions.
As a result of these benefits, mortgage lenders can improve their ability to compete and deliver more innovative and attractive mortgage products to borrowers. Further study or delay regarding this issue, we believe, will only delay the realization of these benefits to consumers.
I would also like to make it clear that PMI supports the role of OSFI to ensure that any company wishing to receive a licence to issue mortgage insurance in Canada meets the requirements that OSFI has established for financial strength, risk management, management experience, and sound governance. Additional competition will diversify the risk that the Canadian government and taxpayers bear through the government guarantee of private mortgage insurance.
In conclusion, increased mortgage insurance competition will indeed benefit consumers and create a win-win situation for borrowers and lenders. PMI's experience from around the world clearly demonstrates that increased mortgage insurance competition will make affordable home ownership a reality for more Canadians.
Thank you. I'll be pleased to answer questions.
I would like to thank the committee for providing the opportunity for RBC to comment on the issue of allowing new competition into the mortgage insurance market. As the largest mortgage provider in Canada, and thus a large consumer of mortgage insurance, we clearly have a keen interest in this matter. From the outset, I would like to emphasize that we are strong supporters of government initiatives to reduce the overall regulatory burden and to promote competition in the financial services sector.
On the issue of mortgage insurance, it is our view that our clients would be better served if the committee were to support the government's proposal to ease the existing barriers to new competition in the mortgage insurance market. Economic analysis consistently shows that eliminating barriers to competition ultimately enhances the interest of consumers in terms of improved pricing, product innovation, and greater access and choice.
The regulatory barriers to competition under the current system effectively result in only two mortgage insurers' supplying of the market. This means that only two sets of relatively similar products are available at relatively similar prices. In other jurisdictions where broader competition is permitted, there have been more extensive product innovations and improved pricing, to the ultimate benefit of consumers. We believe that the same would occur in Canada if the government's proposals to promote competition were permitted to proceed.
In our view, the proposals you have heard to justify either further study or the need for additional regulation in the marketplace do not stand up to review. The conclusion that eliminating barriers to competition and allowing new entrants into the market would somehow increase prices and decrease access for consumers flies in the face of the most basic tenets of economic theory and practice, which hold that precisely the opposite is true. This has been repeatedly demonstrated in the financial services sector where banks' entry into mutual fund and mortgage markets has significantly improved competition in these markets.
We would also note that in the case of the financial services market there is already a vast array of financial regulation and oversight to ensure that any potential concerns with new entry can be addressed. There are quite literally hundreds of legislative and regulatory rules, OSFI prudential oversight, and extensive frameworks at both the federal and provincial levels to ensure that consumers are protected.
Beyond that, periodic parliamentary reviews are possible, such as the current review by the Senate, which is looking back on the last round of consumer reforms to see if they achieved their objective.
Based on all this, our strong view is that the starting point for the committee should be the one proposed by the government. Let the market work for the benefit of consumers and then assess down the road whether isolated concerns are raised, and respond with a targeted regulation to address those concerns.
As one of the largest consumers of mortgage insurance, we strongly believe that our customers will only stand to benefit from better pricing, new product options, and even greater access and entry into the housing market if the government's proposal proceeds. We believe that the committee should follow the government's proposal to open this market up to competition.
I thank the committee for its time.
Thank you, and if I'm short perhaps Mr. Savage can take over.
I hesitate to say this because my friend Mr. Loubier might refer to some sort of collusion, but I must say that I think Ms. Adams of the Royal Bank put it very well. I refer to my previous employment with that institution. I was going to say something similar.
I heard nothing to suggest that the government should not proceed in this way. I think the onus has to be on those who would restrict competition. I think three or four or five competitors will do better for consumers than two. If there is a problem of adverse selection--anti-selection--I haven't heard evidence to say that we need studies. It's not really an answer. Why would one expect that to occur? I haven't heard answers to that. And I think that the Department of Finance doesn't proceed lightly on these matters. OSFI is a very heavy regulator in these areas. There are all sorts of other rules and regulations in effect. So I really see no reason not to proceed.
I guess my only question is whether I'm missing something, or whether anybody among the five witnesses would like to sound a note of caution that I have missed something.
Perhaps this is not a direct response, but I will offer these two observations.
In my opening remarks I did point out as a public insurer that over one-third of what we do today we can directly attribute to service to Canadians in areas that are not served by the private sector. There are gaps in the marketplace the private sector doesn't serve, but as we concluded, we believe the combination of our public mandate and our competitive head-to-head competition, the combination of those two, actually serves Canadians quite well.
So I did want to point out that there are some gaps, but we believe the model today actually addresses them fairly efficiently and we don't see any reason going forward why other competitors would pick or choose any differently than the current competitor has. But there are some areas that aren't served.
The second point I might raise around any thoughts of caution, and I'm not sure it's been discussed in the previous panel, is really on the long-term interest the committee might want to have as new entrants enter the market. We've talked previously of having at one point three private sector insurers, and we did; then the 1980s came and they were particularly troublesome in terms of economic times and they no longer stayed. So I guess the question on reflection I would think about or caution is there's lots of interest in good times, but will that interest be there and sustained in Canada in poor economic times?
You're very generous, Mr. McCallum, thank you very much.
I'd like to ask Mr. Ripplinger and Mr. Kenward a question. I know both organizations from my own province of Nova Scotia, and people like Paul Pettipas, from the Nova Scotia Home Builders' Association, are strong and fearsome advocates for their industry.
You both have indicated that you support the idea for more competition, but you both indicated.... I think Mr. Kenward strongly recommended some conditions and Mr. Ripplinger in the same way. We have to vote today on vote 10. Do you think we should do that?
I'd like to address that question. If I understand correctly, could new competition increase the level of risk in the marketplace, and will that increase the level of risk the government has to pay out on its guarantee?
Clearly, there are many safeguards in the current system today. The degree of oversight from OSFI and the requirements to establish a company to compete, to maintain capital and to maintain operating standards, are very high, as established by OSFI. We clearly envision complying with and exceeding all those requirements, as we do in all the countries in which we compete. So ultimately, even though there is this government guarantee mechanism, it is viewed only as a backstop, as a contingency, and not something that would ever be called upon in reality.
I have a slightly different answer. I see two risks to the government with respect to the guarantee as a result of new entrants. First, depending on the nature of competition, if the competition either doesn't serve all markets equally or tends to serve those that are perhaps more profitable, either geographically or in terms of borrower risk, there is a very good chance that, as a public mortgage insurer who has a mandate to serve all Canadians, we may end up having a slightly riskier portfolio. That, in turn, may cause a cost to government, as a crown corporation.
The second area where cost could come into play is in a down cycle. While we wouldn't actually see them being bankrupt, given the strength of these entities as they've described it, there is a possibility, notwithstanding the investments they will make in Canada, that they may decide to leave and go back to other markets. Again, in that case, because we're a public mortgage insurer and Canadian, we would remain and be one or perhaps one of two insurers in particularly bad economic cycles--and we've seen that happen. That, again, may adversely affect the government's risk.
It's a little bit different from the question you posed, but in the area of risk there are some possibilities.
I have a supplementary question, Ms. Kinsley.
Let us assume that ten businesses enter into the marketplace and compete with Genworth Financial Canada and the Canada Mortgage and Housing Corporation. Let us then suppose that three of those ten new competitors go bankrupt or decide to leave the market after two or three years. In that case, those businesses would sell their client list to other competitors. The Canada Mortgage and Housing Corporation would not be on its own and the government would not have to pick up any pieces, under those types of circumstances.
What then are the risks of allowing new players into the marketplace, including from the consumers perspective?
You say that you would have to shoulder the greatest risks, but if those other risks were shared between Genworth and other competitors, then it strikes me that consumers would be much better served than they are now. In fact, on the one hand you shoulder the greatest risk and on the other, Genworth, besides being alone in the marketplace, only shoulders the smallest risks.
The more recent ones are the low down-payment mortgages, portability of mortgages and mortgage insurance, coverage for the self-employed, speedy approval processes for potential borrowers, longer amortization periods, and reductions in mortgage insurance premiums. There are others, as the other panel members mentioned, all of which we attribute to having a pretty healthy competitive environment between the public insurer and the private insurer.
On this question of regulation, the Canadian Home Builders Association is not advocating heavy regulation here. We've referred to conditions and the fact that there needs to be a focus on these matters. With a government guarantee that has a public purpose, the CHBA doesn't think it wise to simply leave the field. There should be some oversight somewhere in government.
You've heard about cherry-picking. You've heard about kickbacks, or whatever people are concerned about, to the lender in respect of the mortgage insured. You've heard about the questions of the level playing field. We say those are not concerns that should be taken lightly. They don't necessarily lead to heavy regulations, but as another member mentioned, they should be looked after, monitored, and have a focus somewhere in government if government is going to have a guarantee, for public purposes, for mortgage insurance.
Sure. This really addresses that cherry-picking issue as well. We think there is an opportunity to better serve these additional segments of the consumer marketplace, in particular first-time homebuyers who are self-employed, new immigrants, or those who may have some credit blemishes they're recovering from.
Mortgage insurers internationally, and particularly in the United States, have a great deal of experience in working with these customer segments. They can be served effectively by working in strategic partnerships with lenders to design appropriate products that can support sustained home ownership for these segments. These are people who may have very good asset bases, good jobs, and the willingness to pay. They may have had an unfortunate incident at some point along the way.
So we have a great deal of experience, as do some of our new potential competitors here in the Canadian marketplace, in working in these sectors, and we believe we can ultimately add real value for consumers here in those segments.
You're right, and it's a tough decision, and it's something that I don't accept.
I want to ask Catherine Adams a question, since she suggested in fact that the lenders will just automatically take care of this, protect the marketplace, protect consumers, and protect us from any mortgage insurers who might want to be selective in their approach or take advantage of consumers.
It's a pretty hard thing for us to sit and accept when in fact the lenders themselves and the banks, like the Royal Bank, have chosen to abandon certain communities holus-bolus as it is. In fact, it rings very hollow to hear that kind of assurance, for our committee to suddenly go ahead and give this blanket approval, when the Royal Bank can pull out of a community like Winnepeg's north end—every single one of its branches—and not have any kind of care or concern when a whole community is abandoned, making a mockery out of this whole session, because in fact there are no lenders. This is a low-income community. And you are going to suggest that this community is going to be suddenly served?
Mr. Liu, you're going to suddenly serve the 20% of aboriginals in my community who are low income and would like to own a home? Are you going to put some money on the line? Are you going to do what CMHC does and ignore the premiums if they can't afford them or if there are certain segments of the population not served?
Mr. Kenward, are you going to ensure that there are still some protections in the system? Who is going to do that? If we open this up, nothing is left. Have you an answer to that?
Ms. Kinsley, why isn't CMHC taking a tougher line on this? Why are you sitting back and letting it happen? Through the mortgage insurance you're able to actually get some money that you can plough back into the system to meet the objectives of affordable housing. We're prepared to throw that to the wind. Is someone telling you that you have to do this? There does not seem to be any rational basis for any of this. We have no studies. The finance department has given this committee not a single study. The CMHC didn't even come with a written brief today. There has been no documentation about the need for competition in this area, no evidence that consumers are now not being served.
We know that in fact the CMHC increased its mortgage insurance by 15% in one year. It's doing a fairly significant business. No one has told me that they're not able to do the job.
So I would like to know what is really behind all of this. Is it that mortgage insurance is trying to get into the lending field by the back door? Is it some attempt for the financial corporate sector to control it even more and wipe out services to more communities like Winnipeg north? What gives here?
Competition may lead to reduced premiums. That's simply stated. What about increased...?
We've talked about product diversification and new products into the market. What about high-ratio financing for construction of new low-income housing, money that might be available to provide low-income housing for people? That part of the market is not being met today because there's no incentive for the private investor to invest in low-income housing.
If high-ratio financing is available for me to build an apartment building in the northern part of Winnipeg, maybe I'll do it. Maybe that competition stimulates those kinds of results. We can't look at it as competition always being the result of the greedy corporate money-hungry person coming in to grab the money. There are some spinoffs that might be quite positive for the kind of people you're looking to help.
Quickly, the first question is for Ms. Adams, from the RBC.
I asked this question before, but in terms of the RBC being a lender--you're here as a lender, right?--right now you do business with two institutions. Are you going to do business with more than two, or are you just going to pick one? How will it work if we do open up the markets?
I think I'm going to have to wait and see what they have to offer. It's a fair bit of work to hook up a new supplier--to put it that way--and roll that out. There has certainly been a lot of interest and a lot of interesting ideas on the innovation they can bring to the marketplace.
But the reason I'm here is to be pro-competition, to at least give them a chance and not to delay that, because I think it will be better for consumers in the long run.
I have looked at the mortgage insurance business in the U.S., the different types of premium structures that exist, and those are interesting and I think they would be very good for consumers to investigate. So I'm in the listing mode, because they're trying to get here.
Mr. Ripplinger, just to clear it up, on page 4 of your brief--if I can find it--you spoke about 100% of mortgage insurance, and then in the next paragraph you spoke about a 90% guarantee. Could you explain that to me?
It says, “For this reason, we believe that the Crown Corporation must continue to receive a full 100% guarantee.” It goes on to say, “For this reason, we feel that the current 90% guarantee is reasonable”.
Thank you, Mr. Chairman.
I would like to put a question to Ms. Kinsley, but others may answer as well. I've noticed that the mortgage insurance market is extremely profitable. Genworth's net profit for the year 2004 was $200 million. CMHC, despite the fact that it has to shoulder more risk than Genworth does, made $513 million in profit in 2002, $602 million in 2003, $875 million in 2004, and accumulated a surplus of $4.5 billion for its overall operations.
If you simply look at the $875 million in profits for the CMHC in 2004, minus the government's guarantee, and you compare that to the $200 million in profits for Genworth, you can see that approximately 70 per cent of the profits in that sector belong to the CMHC. Despite the risks that the CMHC shoulders year after year, its profits are comparable to those of Genworth's. That mans $200 million in profits for Genworth and $875 million in profits for the CMHC in 2004. That is very profitable! There is a rule in micro-economics whereby where there are profits to be made in a particular sector, there are other businesses willing to participate. I think that despite all the risks that this sector involves, it is still extremely lucrative, even for the CMHC.
Why would the fact that other competitors want to enter the market place and compete with Genworth — that makes $200 million in profits per year — and the CMHC, be a problem? This Crown corporation made $875 million in profit when the products for this market should normally be supplied by the private sector, especially given the fact that the $4.5 billion surplus will never go back to the corporation. In fact, that money has often been claimed for funding social housing. It should be the private sector's role to invest that money back into this sector so that everyone democratically benefits from the profits. Ms. Wasylycia-Leis should be aware of this democratic issue. Why should the only two players get all the billion dollars in profits every year, when those profits could be shared amongst various players who might offer much better products? I'm asking the question. Why not let other players compete? If you take into account efficiency, service to consumers, and democracy — that is so dear to the NDP — it might be worth having other players to better serve consumers and better spread the profits.
Certainly. Thank you, and thank you to everyone for the presentations today.
We've heard a little bit about gaps in the marketplace and areas that aren't currently serviced or may be less serviced than others. I have two specific questions, one pertaining to small business and the acquisition of commercial property and whether some private companies would be interested in making mortgage insurance commitments in that area, and the other pertaining to agricultural property where currently CMHC has some very strict guidelines. I believe it's a house and six acres which they will consider for mortgage insurance.
I'm wondering if private insurers would actually ensure that the banks could consider the entire property in the case of agriculture, or whether anybody has packages like that. Mr. Liu, I'd like to hear particularly from you on that.
I have a question for Mr. Kenward.
You've indicated that you're very concerned that there could be kickbacks between the mortgage insurers and the banks, and that you would be fully opposed to that. I'm just curious, because I know the home builders do receive referral fees from the banks when they send mortgages to the bank. It's a fairly seamless process. In fact, most of the home builders turn the referral into interest rate savings for the consumer. What they do is offer a preferential rate to the consumer by donating their bank referral towards the purchaser's mortgage.
I'm curious. Seeing as it exists in that area and it's invisible to the customer, why would you have a problem with it in the other area? I'm not advocating on behalf of the banks. I'm just suggesting that I find it's a double standard, and I'm wondering why you're advocating that.
Mr. Chairperson, I would argue that we hold in abeyance the decision on this vote until we have some of the questions answered that were raised at our two hours of deliberations. It was a very useful discussion. I don't think all of the questions were answered and I would hope that we would have an opportunity to at least weigh the evidence, read the testimony and make a serious decision.
It would seem to me, Mr. Chairperson, that there were a number of issues raised that many of the witnesses supported, such as some qualifiers placed upon this decision to open up CMHC mortgage insurance for competition. And I would hope that we'd have a chance to at least present some of those ideas and look at a more balanced, reasoned approach to this whole issue.
So if it's possible, I'd like to suggest--I'm not sure what the proper terminology is--we hold it over until we've had a chance to discuss it further.
I appreciate John's feelings that this issue is a fait accompli, or his perception that there were no concerns raised at all, but that was certainly not my read of discussions. We've had a number of presenters indicating that they felt it would be important to attach some sort of conditions to the motion.
We had very clear wording presented to us from the Desjardins group, and we also had some suggested wording from the Real Estate Association, and others felt that it was important to ensure safeguards were put in place around this proposal.
This is not a cut and dried issue; it is not one in which there is absolute unanimity. There were all kinds of concerns raised, and it's not appropriate to simply hear a number of witnesses, as we've done all afternoon, and then simply have no discussion as a committee. How are we going to handle these concerns? Is there a way we could present some amendments? Are there some qualifiers we could attach? Should we invite Finance officials to answer some questions about what studies they've done? Should we ask for a brief in terms of the impact of this on potential access by consumers all across Canada for mortgage insurance? Are there any studies to show that there's a problem now? Are there certain areas of the population now not benefiting from mortgage insurance at CMHC? Is it out of reach for some? What's the general lay of the land? Surely to goodness, we would want to give this some thought. Why did we go through this?
As I understand it, Mr. Chair, the vote would be to consider opening up the industry to further competition, subject to the background checks by OSFI and subject to the minister's discretion.
None of the witnesses here today said we should not do that. Every single one of them said they favour competition, and a number of them said this decision should not be put off any further.
I can't quite see what the issues are. If the issues are how OSFI should be regulating this, then that's not part of this vote, as I understand it. We could certainly pursue that matter later, but this vote is simply to, in principle, open up the industry to further competition, and I think that's a fairly simple issue. We don't really need a lot more study there.
The problem with this is that it's a straight-up, straight-down vote.
I wouldn't disagree with Diane, that the competition should be enhanced. I think she's right, that pretty well all witnesses supported that. It's subject to the OSFI review and the Minister of Finance's discretion, etc.
However, we have not explored the perverse consequences of competition. The perverse consequences, as some witnesses have suggested, are that there may actually be less insurance available to some segments of the market. We heard that as a concern, rather than as evidence. We didn't deal with whether the threshold should be raised from 75%, because frankly 75% to 80% is just freebie insurance. For any insurer, that's just cream money. Why that will continue to cost consumers a lot of money, I don't really know. And I don't know why CMHC should have a 100% guarantee, but not all the other competitors. Those are concerns--legitimate concerns.
I'm going to favour the notion of opening up competition. But I do feel that without some serious undertaking on the part of the government to support a committee inquiry into concerns, such as the 75% threshold and CMHC having the 100% guarantee, it makes it very difficult to support vote 10 and ultimately, I guess, Bill C-13--though I'm not clear how Bill C-13 interacts with the amendments process.
Those are the reactions I have. If the parliamentary secretary could give some assurance to the committee about making all officials, elected and otherwise, available to the committee for this issue so that the study will actually be meaningful and will actually have impact, then I think I could, in conscience, support the vote. If in fact it's just something for gathering dust--a cute little study by a cute little committee--well, we missed our opportunity.
I would love to speak again. Thank you.
First of all, with respect to our deadline for estimates, I think we need to review that for a moment. There is really no obligation for us, other than the agenda of you, Mr. Chair, or the Conservative government, to necessarily push this through at the present time. As I understand it, we have until November before the main estimates are deemed to have been approved, unless we say otherwise. So there is no deadline that it has to be this June.
It's quite separate and apart from the budget and Bill C-13, for which there are certain deadlines you are interested in, as we've heard on numerous occasions. But with the estimates, we have the opportunity to actually do a thorough review on clause 10 before approving it. If we can't do it all this spring, we can always come back to it in the fall. You may not like that schedule, but there is nothing that requires us to pass the estimates right now.
I want to say two more things. One, we had some very specific suggestions from a couple of presenters about how we could put some guarantees in place that would actually make it possible for some protections against the possible negative implications that some of us foresee around opening up this competition.
Second, Mr. Chair, you'll have to agree with me when I say that I think we've only heard one side of the story. I know time was of the essence when this was set up. We may not have had everybody at the table that we should have. But I did make a suggestion that Michael Shapcott, who is well known in the field of housing, appear. He couldn't meet the timetable. However, he did send a brief that he asked to be circulated to the whole committee. I don't believe that has happened yet. I think in fact that we owe it--
The reason I flagged this issue initially was what I tried to outline in my first remarks: the stakes of the marketplace. I believe that the marketplace has developed in a certain fashion, in that the stakes of mortgage insurance are a lot higher than many of us think.
Competition is good. I have nothing against competition. I think every witness we heard basically mouthed those words. What I'm concerned about are the unintended consequences of competition, and there may be consequences that are not immediately apparent from the witnesses we had. I am concerned that people with poor credit risk will have less credit extended to them by way of insurance. I am concerned about the American experience, in which $750 million in premiums were paid by homeowners that went into the pockets of insurers without resulting in lower insurance premiums for buyers. I'm concerned that the benefit to homebuyers has been overstated. I don't know the answer to those questions because—and I agree with you, Judy—I don't believe we've had all sides of the question presented to us.
I've also heard from a number of people I respect at the table who say they view the situation as being important and in need of some kind of regulation and oversight in going forward. I agree with that.
I agree with my colleague, Mr. Dykstra. I believe that if we're able to have some assurance—a problem that perhaps your secretary can help us with as well—that we can come back and have a look at how this marketplace is performing down the road, then I'm prepared to support it.
But I am concerned about unintended consequences. I want to get it on the record to make sure that if we're making this kind of change—to an environment I truly believe is more important than we give credit—that we have a mechanism that allows us to come back and ask if it's working.
Mr. Chairman, I think that we are confusing the issues here. I just listened to Mr.Turner talking about debt load of families, people who have poor credit rating, those who could be left out and so on.
We are experiencing this situation at the moment. When the risks are greater, the Canada Mortgage and Housing Corporation assumes them, and when they are less significant, it may be Genworth that assumes the risks. However, as the Desjardins representative said earlier, we are forcing a company like Genworth to accept even the risks that are not necessarily the best ones.
Consequently, we cannot deal with the financial situation of families here, under this vote or with a bill. At the moment, we are talking about increasing competition in a duopoly, a market where 70 per cent is covered by a Crown corporation and 30 per cent by a private company, the only one for which the government provides a guarantee.
With respect to oversight, if there is a financial sector in the world where there is oversight and even too much oversight, by the Office of the Superintendent of Financial Institutions, for example, that sector is definitely in Canada. So let us stop confusing the issues. If we want to talk about social housing, we can debate that and try to get the $4.5 billion surplus at CMHC or try to encourage the government to invest in this area. But let us not try to deal with the entire problem facing households that want to purchase their first home and with the whole problem of oversight, when we already have some very commendable institutions that oversee all areas of financial activity.
That said, I think we should move to the vote. I would mention in passing that we were supposed to end at 5:45 p.m. I would call for the vote, Mr. Chairman.
You may have a point. That's not a point of order.
Now, with respect to the suggestions, I've endeavoured to listen to each of the arguments, and I ascertain that some would like to proceed with the vote now, and some not, and that others would like to see further research done, conditional on its satisfying their desires once they see it.
That being said, I'd like to ascertain the degree of support for the idea of deferring the vote until next Monday, as Madam Wasylycia-Leis had suggested initially. Do I need a motion from the committee for that, or can we just proceed to a show of hands?
Because we have vote 10 before us on the agenda, I'll just ask for a show of hands on that. Which committee members would like to see us defer the vote until Monday?
Thank you, Madam Ablonczy.
Moving on, then, to the witness list, which has been circulated, this is not, I should point out, a witness list; it is a list of suggested or possible witnesses. I would invite input from committee members--as we have asked in the past--for other witnesses you would like to bring forward.
I would make the point that you come forward if you have any other witnesses that you would like to have invited.
Mr. Turner, you had referenced that some of the people who had given testimony today were not on this list. You are more than welcome to suggest they come here, if you wish.
So please, any committee members who wanted to add to this list, I'd invite them to do so.
Mr. Savage, sir.
Thank you, Mr. Loubier.
I would make the observation, however, that this is a different process, on Bill C-13, although we all understand there is an overlap in terms of some of the topics—the one in discussion today, as an example. Nonetheless, I don't believe it would be without precedent, but it would be a restrictive motion for us as a committee if we were to wish to exclude people from appearing on Bill C-13, which is the budget implementation bill.
Yes, Mr. Loubier.
I think we've dealt effectively with vote 10 and perhaps we can come back and look at this in a review process sometime.
I certainly think there's no point wasting the time of some witnesses who have been here today. I would suggest that Mr. Murphy, Mr. Vukanovich, and Mr. Charles, from my point of view, be excused from coming back. I think we gave them a good going over today.
They are busy people, I agree, Mr. Pacetti, and I think that unless they had something pressing they wanted to say that they haven't said here today, they should probably be excused.
Since this is a list of suggestions, there's nothing wrong at this point with having this kind of discussion and making a decision not to repeat what we just went through today. There's no point in that.
My major concern is that since this is a list of proposals, there are a number of suggestions I made that did not appear on the list. Mr. Chair, there are a number of names I suggested that are not on the list and I'm curious to know why they aren't on the list.
I would like, in fact, to remind you that I suggested we invite the Canadian Labour Congress. I only made four suggestions, assuming these were fairly broad-based consultations. I also suggested a couple of finance ministers. That was all part of a list. We sent the memo. We can certainly give you the documentation.
Finally, I would also suggest that since Michael Shapcott couldn't attend today that he be transferred over to this list and added to our budget consultations.