Canada Mortgage and Housing Corporation (CMHC) is supposed to protect the banks and credit unions (hitherto referred to as “banks”) from a mortgagee defaulting on their mortgage obligation, but this isn't the whole story!
The question is: What is CMHC's role in the scheme of things?
When we borrow money for a mortgage from a bank the myth is that we are borrowing from saver's deposits. This is only partially true. You see, because of a magic trick called “fractional reserves”, financial institutions are only legally required to hold a very small percentage of savers deposits (varies between 0% to 10%), the remainder is lent out. The fact is, when we sign for our mortgage (which literally means death pledge) the banks then create that money with interest out of nothing based on our promise to make payments on that mortgage, true! Check out a documentary called “Oh Canada” if you want to learn more about the Canadian banking system.
So, if we have less than the 20% required as a down payment we have to get mortgage insurance through CMHC, Genworth or Canada Guaranty (formerly AIG) to be granted a mortgage, we have no choice. The premiums we pay are then supposed to protect the banks in case we default on our mortgage on money that they have created out of thin air. I'm afraid that these are the facts and most of us have no understanding just how differently banks operate in actual fact as opposed to our perceptions of them, and that's how they like it.
Here's an interesting fact: Did you know that in 2009 Canadian banks were bailed out by a combination of money from the US Federal Reserve, Bank of Canada and CHMC. The exact details were never publicly disclosed to Canadians. It is estimated that CMHC (which is owned by the federal government by-the-way) bought $69 billion worth of mortgages off Canadian Charted Banks.
CMHC is clearly there to protect the banks and perpetuate the lucrative financial scheme which banks have going. The belief is that banks cannot be allowed to fail even though we fulfill their requirements and follow their rules when we apply for a mortgage. They really assume no risk at all! Mortgagees and the tax payers are ultimately on the hook for whatever trouble the banks may get themselves into. Wouldn't it be nice if we had the same guarantees in our own businesses?
The point is to be aware that this system which you perceive to be fair, honest, sound and necessary is in reality greatly skewed to benefit the banks. Our role as passive and obedient bank clients merely gives the system legitimacy.
The unfortunate part is that as consumers we have no real choice but to play by the bank's rules and go along with the system in place, otherwise we simply could not get a mortgage to buy a home. CMHC is intrinsically a part of the banking system and very few of us know it.
I hope that this article helped to infuse a little reality into your perception of the banking system and part of CMHC's role in the scheme of things.