CMHC Foreclosures Rule Change Raises Suspicions About Mortgage Insurer's Motives

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CMHC FORECLOSURE RULE CHANGE
Canada’s government-run mortgage insurer is denying claims it’s trying to keep information secret about foreclosed homes it’s selling. (AP Photo/Gene J. Puskar) | AP

Canada’s government-run mortgage insurer is playing down suspicions it’s trying to keep information from the public about foreclosed homes it’s selling.

Questions were raised Tuesday after a document from the Quebec Federation of Real Estate Boards, circulated on Twitter, stated the CMHC had instituted a new policy asking real estate brokers across the country to stop indicating whether a property being sold by the agency had been repossessed.

For Quebec’s real estate brokers, that presented a challenge because the repossession field in their brokerloading system, used to list properties publicly, was mandatory.

So brokers had no choice but to indicate “no” in the repossession field, “which goes against ethical rules stipulating that real estate brokers are obliged to publish information that is truthful and verified,” the document stated.

Quebec’s real estate boards solved the problem by making the repossession field optional in their brokerloading systems, but “the issue raises a larger concern about why CMHC is acting now to tighten up its practices for foreclosures,” the National Post reported.

Canada’s housing market has been under downward pressure recently, and housing downturns often coincide with increases in property foreclosures if they are a result of economic weakening. Rising foreclosure rates can also put downward pressure on house prices. However, there has been no indication so far that foreclosures are on the rise in Canada.

The CMHC says there is no conspiracy to keep facts about home foreclosures in Canada a secret. In a response to the Post’s story, CMHC Vice-President Mark McInnis suggested the agency was just trying to get better prices for the properties it sells.

When CMHC assumes ownership of a property due to borrower default it lists the property using a licensed real estate broker. In an effort to seek the best return, CMHC requests that brokers do not include, on the property listing, that a home is a foreclosure,” McInnis wrote.

McInnis noted that “there is no legal requirement that the seller disclose in a property listing, the reason the property is being sold.”

But he noted that prospective home buyers will still find out that if property was foreclosed on when they find out it is being sold by the CMHC.

“The real estate broker is … required to disclose this information to all potential buyers in a timely manner,” McInnis wrote.

Speaking to the Post, Century 21 Canada CEO Don Lawby agreed with the CMHC’s explanation.

The Crown corporation responsible for insuring mortgages “is trying to get the better price,” he said. “You know something is repossessed, you low-ball the offer. You know you are not dealing with a homeowner but an investor.”

This isn’t the first recent controversy to question the accuracy of CMHC’s data. Questions were raised last year about CMHC’s emili database, an automated risk assessment system that critics said was helping to drive up house prices by giving mortgage lenders too broad an idea of what an “acceptable” price is for a property.

“It allows people to pay too much for a property,” Rick Sieb, president of Intercity Appraisals Ltd., told the Globe and Mail.

The CMHC has taken flak recently for what critics see as a lack of public accountability within the Crown corporation, and for what some see as policies that have helped inflate house prices in Canada.

The agency has also been criticized for what Maclean’s magazine described as the “agency’s reputation for snuffing out dissent,” something the agency reportedly denies.

The delinquency rate on Canadian mortgages is considered to be very low. Data from last year indicate a 0.38 per cent default rate on Canadian mortgages, compared to an average 3.4 per cent rate in the United States.

CORRECTION: An earlier version of this story implied that CMHC's emili database is used by real estate agents. In fact, it is used by mortgage lenders. The story has been edited to reflect this fact.

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