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IMF advises Ottawa to trim CMHC's mortgage activities, then maybe phase it out

OTTAWA - The International Monetary Fund says the Canadian government should look for ways to clip the wings of Canada Mortgage and Housing Corp. and eventually get out of the mortgage insurance business altogether.

The Washington-based financial organization says in a working paper that government actions to cool Canada's hot housing have had some impact, but the market remains the single most important domestic risk to the economy.

Furthermore, it notes that if there is a crash, taxpayers would be left holding the bag because CMHC guarantees high-risk mortgage debt through government backing.

Ottawa should impose the same oversight on CMHC as it does private mortgage insurers and try to increase the private sector's participation in the market from the current level of about 25 per cent, the paper says.

Longer term, the IMF says the government should consider eliminating its role in the mortgage insurance business altogether, as Australia has done.

This is not the first time the IMF has urged Ottawa to trim CMHC's sails, and the government has done just that on several occasions, the most recent coming last month when the agency declared it would no longer insure second homes.

But the paper by economists Ivo Krznar and James Morsink, published earlier this week, hardens the IMF's stance toward the federal agency.

Former finance minister Jim Flaherty mused about winding down government participation in CMHC's mortgage insurance operations, noting that the agency had outgrown its original post-Second World War mandate to house veterans and promote home building. With a mortgage insurance portfolio of nearly $600 billion, CMHC is a major financial market player.

David Madani of Capital Economics, who believes Canada's housing market is poised for a major correction, said the IMF and the federal government are in sync about what should happen to the CMHC.

He says he expects Ottawa to keep imposing restrictions on its activities and may move to privatize it over the next decade.

The Canadian Press


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