INSURANCE

Mortgage Life Insurance refers to an insurance policy that guarantees repayment of a mortgage loan in the event of death or, possibly, disability of the mortgagor. Private Mortgage Insurance (PMI) refers to protection for the lender in the event of default, usually covering a portion of the amount borrowed. There are Government loan products that also include a Mortgage Insurance Premium (MIP), essentially the government equivalent of PMI.

For example, Mr. Smith obtains a mortgage loan that exceeds 80% (the typical cut-off) of his property's value and/or sale price. Because of his limited equity, the lender requires that Mr. Smith pay for mortgage insurance that protects their institution against his default. To obtain a mortgage loan insured by the Federal Housing Administration, Mr. Smith must pay a mortgage insurance premium (MIP) equal to 1.5 percent of the loan amount at closing. This premium is normally financed by the lender and paid to FHA on the borrower's behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well.

• Private Mortgage Insurance (PMI)

Is a default insurance on mortgage loans, provided by private insurance companies. PMI allows borrowers to obtain a mortgage without having to provide 20% down payment, by covering the lender for the added risk of a high loan-to-value (LTV) mortgage. The Homeowners Protection Act of 1998 requires PMI to be canceled when the amount owed reaches a certain level, particularly when the loan balance is 78 percent of the home's purchase price. Often, PMI can be cancelled earlier by submitting a new appraisal showing that the loan balance is less than 80% of the home's value due to appreciation (this generally requires two years of on-time payments first).

• Mortgagee's Title Insurance

Is a policy that protects the lender from future claims to ownership of the mortgaged property. Generally required by the lender as a condition of making a mortgage. In the event of a successful ownership claim from someone other than the mortgagor, the insurance company compensates the lender for any consequent losses.

• Mortgagor's Title Insurance

Is a policy protecting the buyer/owner of real property from successful claims of ownership interest to the property. The coverage usually is supplemental to a Mortgagee's Title Insurance policy, and the premium is customarily paid by the buyer.

Canada Mortgage and Housing Corporation (CMHC) is a Crown corporation owned by the Government of Canada.

CMHC is responsible for the housing industry in Canada. Its main duty is currently to ensure low cost mortgage loans are available to Canadians by providing insurance to lenders in case of defaults and homebuyer assistance. The borrower can pay lower interest costs when the loan is insured but the borrower has to pay the insurance premiums so it is uncertain as to whether the CMHC is helping the borrower reduce financing costs.

Since 1954 one in three Canadian home buyers have made use of CMHC's programs. The CMHC also has a large research wing that analyses the housing situation in Canada and housing design and technologies. Its library and Canadian Housing Information Centre are renowned.

The Minister of Labour and Housing is responsible for the maintenance of the agency.

In 1979, the Corporation's name was changed from the Central Mortgage and Housing Corporation to Canada Mortgage and Housing Corporation.

IMPORTANCE IN CANADIAN PUBLIC SECTOR

The CMHC is the second largest crown corporation after Canada Post in terms of revenue with some $4.6 billion in 2004. It is the largest crown corporation in terms of assets with some $26 billion in holdings. The CMHC influenced the development of Canadian housing projects (see below). Furthermore, the federal Government of Canada often uses the CMHC as a financial agent.

INFLUENCE OVER HOUSING PROJECTS

The CMHC provides assistance and guidance to the private sector in the building, design and planning of houses. Thus provincial governments have aligned their housing standards and planning practices along those of the CMHC. The CMHC also makes financial loans to cities at low- and middle-interest rates for the development of housing projects. Thus, both the cities and provinces in Canada rely on the CMHC for the continuation of housing development in the areas under their jurisdiction.

This alignment has had a number of influences on Canadian housing in general:

• Development of the policy of every Canadian family having a home.
• Development of a national building code.
• With the insurance of mortgages and 90%/10% downpayment standard the suburbanization of Canadian cities was possible.
• Building experimental houses for new and improved building techniques and technology.
• Often acts as a developer, but this function is diminishing.
• Influences the socio-economic differentiation in cities by approving low-cost housing projects only when placed where they desire. For example, the Calgary municipal government wanted to develop the NE portion of the city as a high-cost housing market due to the view of the Rocky Mountains. However, the CMHC, in loaning money to Calgary, decided that the development should instead be focused around low-cost housing projects.