CMHC debt threshold doubled in 2 years to keep housing bubble going

According to this article, the government has doubled the CMHC's debt threshold to $600 billion in 2 years (the latest increase was this March from $450b to $600b).

House sales are up by a third nationally. The average price is ahead 11% on average. Mortgage loans have hit an all-time high – rising an estimated 12% in 2009 alone. Consumer credit has soared 9% during the recession. And we now owe more, per head, than the Yanks. Household debt in Canada is 140% of income. Down south, it’s 132%.

So why do we have a real estate boom, when they are still wallowing in their bust?

Simply because CMHC, a federal government agency, backs all high-risk mortgages with taxpayer dough. By removing all risk from the banks, it lets them lend to people without money and little prospect of paying their loans off. It allows them to give the cheapest, lowest rate to those with the highest default risk. In case that sounds familiar, we used to call them ’subprime.’

In fact, the government encourages this. It obviously wants a housing bubble. It’s doubled CMHC’s debt threshold to $600 billion, just slightly higher than the current national debt – an amount of money which goes 100% into high-ratio loans and which is guaranteed by taxpayers.

And a very good comment about this on a local blog:

No, the CMHC even if it does implode and in a worst case scenario loses about 1/4 of the 600 billion it can currently insure won’t bankrupt the country, we’re 800 billion in debt now, it would just push the debt clock back a decade.

Still, a decade of paying off debt cancelled out by a few years of fiscal mismanagement from a so called “conservative” government is nothing to sneeze at. I could find a better use for 150 billion dollars other than propping up a market that will inevitably collapse and will only cause more damage the longer it goes on. Healthcare, education, daycare subsidies…

It’s beside the point that it won’t kill the Canadian economy, it’s grossly irresponsible behaviour that hurts Canadians for the sake of short term political gain.

Some other good reading material on the subject:

CMHC: Canada's Freddie and Fannie?

In March, CMHC was allowed to insure up to C$600 billion in mortgages, up from C$450 billion the year before, said a CMHC spokesman today. “Last year alone, CHMC did 919,780 deals worth a staggering C$148 billion, or about twice what it had planned. To accommodate that, the feds have raised its allowable insured mortgage limit to C$600 billion, or about double what it was two years ago.”

Why Canada's Housing Bubble Will Burst

What few Canadians realize is that the housing market has avoided collapse (prices are down 32 per cent in the U.S.) because the Harper Conservatives directed the CMHC to change the mortgage rules to effectively make the Canadian government the biggest sub-prime lender in the world.