One month to the day after the introduction of a strict new “stress-test” lending qualification rules for home buyers with default-insured mortgages, the Canada Mortgage and Housing Corporation (CMHC) announced that it has passed its own rigorous stress test to ensure it has enough money to weather an economic storm.
The federal housing agency said that, following the modelling of a number of economic scenarios, it has enough capital to withstand even the most extreme of these conditions.
The CMHC said that tested its mortgage loan insurance and securitization businesses against several extreme scenarios, including:
- global economic deflation;
- sustained low oil prices;
- a high-magnitude earthquake;
- the collapse of a major financial institution; and
- a US-style housing correction.
“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. “Rigorous stress testing is an essential part of our risk management program and allows CMHC to evaluate its capital levels against these scenarios.”
The stress testing follows heavy intervention in the Canadian mortgage industry by the federal government and its financial regulator the Office of the Superintendent of Financial Institutions (OSFI). On September 23, OSFI released a draft advisory updating the capital requirements for residential mortgage insurance risk.
