CMHC Insurance: Managing Risk, Except When You Think We're Not
In a piece by the Globe and Mail titled "CMHC to return to lower-risk roots" released today we learned that the CEO of CMHC, Evan Siddall, is set on ensuring a manageable risk level for the housing insurer. I suppose a "manageable risk level" is what all insurance companies try to achieve. Having to say it publicly implies some other outside pressure - from the media, from the public, from the politicians - to get on board with some sort narrative fit for public consumption. Of course they want to ensure a manageable risk level! They're an INSURANCE company!
Where are the Claims?
Most insurance companies wait until there has been some history of claims before restricting coverage and raising premiums. Not CMHC. They bow to outside pressure - apparently not trusting themselves, the people they've hired, or their data models and claims history to decide how things should be priced and what risks are covered. The fact that CMHC has been screamingly successful making gobs upon gobs of money for the federal government is almost forgotten. The insurance and risk professional running the agency are making their decisions based on what a bunch of people, some who have never owned a home, never will, and probably don't even pay taxes, tell them to do.
Who are these people that CMHC is taking direction from? They typically fall into one of the following categories:
The "Woulda, Coulda, Shouldas"
These folks tend to complain about the price of housing. They're not too worried about taxpayer risk, government intervention, Bank of Canada policies, or anything like that. Sometimes they say they are, but in truth, they're just upset because they missed out on great housing appreciation over the past number of years.
- They woulda bought a home; "The timing wasn't right," "We couldn't find the right place," "We wanted to put 20% down," or my personal favourite, "We didn't want the responsibility of home ownership".
- They coulda bought a home; Prices were more affordable, financing was available, rates were low, but they listened to the 'experts' who predicted a real estate bloodbath. Oops!
- The shoulda bought a home; In some markets prices are up 60% in just a few years. Others have been flatter, but that's beside the point. If you are late getting to the dock, it's not right to complain that the ship is sailing away. It always sails away. That's what ships do.
The "everyone is getting rich except me" whiners
These pleasant people also hate you if you have a nicer car than they do, a better job, prettier wife, sunnier vacation or smarter kids. Very common on certain internet discussion forums, they follow prominent housing bears like Garth Turner, Ben Rabidoux, and David Madani. ALL OF WHOM HAVE BEEN SPECTACULARILY WRONG FOR YEARS.
Not content to whine about their own misfortune, having missed out on the opportunity to buy when they had the chance (WCS - see above), these folks actively campaign against YOUR net worth and financial stability by cheering on a housing market crash. Not a correction. A crash. Thankfully, these gurus and their worshippers in the church of unintended consequences and self-fulfilling prophecies have yet to see their day in the sun. It may come some day - we'll see - and they'll claim victory. If that happens, just remember...even a stopped clock is right twice a day.
The "I don't like this government so everything related to it is terrible" group
I think the headline says it all. For people who don't like Conservatives it's easy to poke holes in their fiscal policy. It's easy to go after CMHC as an evil appendage of the federal government. Even card-carrying Conservatives have reason to be concerned about some of the interventionist and decidedly non-conservative policies coming out of the government....but it's not all bad.
Realistically, when you look at the Canadian economy and Canadian housing market we truly have done better than just about any country on earth over the past few years. Am I happy about all of the policy changes? Reversals? New red tape? Not at all. In fact, it's made running a business in this space more challenging than usual because we're constantly having to adapt. I sure wouldn't trade our position for that of Brokers or Borrowers in the US, or Australia, to name two.
If you sat on the sidelines over the past five years or more because you guessed wrong on government policy, then it's kind of strange to blame them for your decision.
The "When interest rates rise, people are going to be really sorry" people
There are people who take this approach to marriage, jobs, and other major decisions in life. Waiting for the perfect scenario just means more waiting. The perfect spouse, the perfect job, the perfect moment in time doesn't just appear - they take work, they take timing, there's an element of chance, and they require people to make a decision. Sadly some people never move forward because the fear of what could happen prevents them from acting on what they can control.
Here's a newsflash: We don't control interest rates.
We don't control global economic variables. We can't determine the price of oil or whether or not there will be an increase or decrease in demand for our manufactured goods. We can control whether or not we purchase a home that we can afford, that provides our families with shelter, that allows us to build equity over time, and that we can lean on in an emergency if the need arises. You don't have to buy a home...but beating up other people for making a reasoned, well thought-out decision, with the guidance of a professional isn't fair.
Sometimes people make the wrong decision. Sometimes they experience life events that change the equation and they can no longer afford what they bought. Sometimes the market happens and rates change, which put people in an uncomfortable position. That's life. I'd like to think that people should still live life - in spite of some of the risks - and do their best to manage.
Eliminating every risk in life is not only impossible, but sad, because it eliminates what's possible.
Who Decides What You Need? (Hint: Not You)
My biggest pet peeve with the CMHC announcement is the Big Brother component. I'm a firm believer that people, by and large, will make a rational, reasoned decision based on the information they have available to them. The big pointy hats at CMHC and the federal government apparently disagree.
Here's a fun thought: you're critical of government, critical of CMHC, critical of the bureaucracy, critical of policy and overall think they're a bunch of dum-dums. Good news! Because of all that pressure, they're going to "reduce risk" and decide how much house you need. Say what? That's right! CMHC will help you buy the home you need - not the home you want - as decided by them. What great news! Now you can abdicate all your decision making power, cancel the appointment with your mortgage broker, because the government has it all figured out for you. Let's forget for a moment that they spend $1,000 per paperclip and couldn't transfer a phone call without a 300 page bilingual manual...they've got this.
Is There Good News?
Yes. The good news is that most of what CMHC is announcing is public posturing. This is for the media. This is for the WCS folks, for the whiners, the haters, and the self-important analysts. If you have a good job, good credit, and are interested in buying a home, you can find one that is within your means - now and in the future. You can buy a home to live in, to raise a family in, and that will be a good long-term investment. Work with professionals, people who have been through the ups and downs, and are willing to listen to your concerns. Don't let the Shmexperts get you down.
