If the real estate market were to tank tomorrow, CMHC would be fine. You’ll be screwed but CMHC will be able to weather the storm.
For those who don’t know CMHC is responsible for the lovely lump sum insurance payment that is tacked on to your mortgage if you are purchasing with less than a 20% down payment.
The mortgage insurer recently performed stress tests that would mimic what would happen if banks suddenly hiked their rates. Canada Mortgage and Housing Corp. says it could withstand such a scenario, but its mortgage insurance business would incur $1.13 billion in losses.
In the event of a “severe and prolonged” economic depression, CMHC predicts that house prices could drop 25 per cent, unemployment could rise to 13.5 per cent and the insurer could incur $3.12 billion in losses.CMHC says the tests confirm that its capital holdings are sufficient.”Stress testing involves searching out extreme scenarios that have a very remote chance of happening and planning for them,” said Romy Bowers, CMHC’s chief risk officer, in a statement.
Phew, I guess.