There are two questions that Canadian taxpayers need to ask about the Canadian Mortgage and Housing Corporation:
1. Are CMHC fees for mortgage insurance high enough?
2. Does CMHC have a big enough reserve against potential losses?
The first question is the most important question. Because if the answer to that question is "yes", then CMHC mortgage insurance makes Canadian taxpayers better off, quite apart from any other benefits CMHC mortgage insurance may or may not have. It's also impossibly hard to answer. Because it is very hard to estimate the expected losses from low probability events. History is not a very good guide to the future for low probability events. Maybe we just got lucky in the past.
The second question doesn't really matter. Since the taxpayer owns CMHC, a $10 billion dollar loss to CMHC is a $10 billion dollar loss to the taxpayer, regardless of whether the CMHC can cover that loss out of reserves. Because the taxpayer owns those reserves. But setting money aside in a contingency fund forces us to recognise that bad things can happen, so we don't fool ourselves into thinking we are richer than we are.
I last looked at CMHC reserves in September 2009. At that time (as best I could figure it out), CMHC had $8.17 billion in reserves. (They seem to call it "Total Equity in Canada", which I guess is a nod to the idea that it is the Canadian taxpayer's CMHC-rainy-day-fund.) From the September 2013 quarterly report (pdf) that number has now increased by 85%, to $15.148 billion. That's good news.
But we need to compare that increase in reserves to the increase in the size of potential losses. If the size of potential losses had also increased by the same 85%, the good news would be cancelled out.
The 2008 to 2013 Financial Highlights (pdf) shows that "Insurance-in-force" has increased from $408 billion in 2008 to $573 billion (planned) in 2013. That's a 40% increase. (And the percentage of that due to "High ratio homeowner" has declined slightly from 57% to 53%). And "Securitization Guarantees-in-force" has increased from $234 billion in 2008 to $413 billion (planned) in 2013. That's a 76% increase.
So, as far as I can see (which isn't very far), that is good news. I do not know whether CMHC fees are high enough, and I do not know whether CMHC reserves are big enough. But the reserves do seem to be bigger, relative to maximum potential losses, than they were five years ago.
I wrote that post in 2009 because I was concerned about what would happen to CMHC if house prices crashed. According to Teranet National Bank data, Canadian house prices dropped about 10% from the peak in 2008 to the trough in 2009, and have increased about 30% since that trough. CMHC's "Net Insurance Claims expense" went from $372 million in 2008 to $1,112 million in 2009, when house prices fell and unemployment increased, then dropped to about half that amount since.
2009 was a bad year for CMHC losses. But despite that $1.1 billion in Net Insurance Claims expense, CMHC reserves increased by over $1 billion both in 2009 and in 2010. It would take something much worse than 2009, at least 10 times worse, to wipe out CMHC's reserves.
Which is good news. We have been more fiscally prudent over the last 5 years than I thought we were.
That's if I'm reading this right. Which I probably am not. Because I don't understand these financial statements very well. Which is why blogs have comments.