Proceedings of the Standing Senate Committee on
Social Affairs,
Science and Technology
Issue 34 - Evidence, June 1, 1999
OTTAWA, Tuesday, June 1, 1999
The Standing Senate Committee on Social Affairs, Science and Technology, to which was referred Bill C-66, to amend the National Housing Act and the Canada Mortgage and Housing Corporation Act and to make a consequential amendment to another act, met this day at 9:00 a.m. to give consideration to the bill.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Before our spring break, the Senate referred to this committee Bill C-66.
[Translation]
This morning, we are very pleased to welcome Mr. Alfonso Gagliano, the Minister of Public Works and Minister responsible for the Canada Mortgage and Housing Corporation. Mr. Gagliano is well known to everyone. He has been the Member of Parliament for the riding of Saint-Léonard--Saint-Michel since 1984. He was appointed Minister of Public Works and Minister responsible for CMHC in 1997. Accompanying Mr. Gagliano are Mr. Marc Rochon, the President of the Canada Mortgage and Housing Corporation,
[English]
by Mr. Douglas A. Stewart, a Vice-President of CMHC, by Karen A. Kinsley, also a Vice-President of CMHC, and by
[Translation]
Mr. André Asselin, Director, Strategic Planning, Policy and Marketing.
[English]
When the minister and his officials have finished, we will invite a couple of officials from the Department of Finance to the table in the event that there are questions relating to aspects of this bill that they can answer.
Welcome to our committee. I invite you to make an opening statement.
[Translation]
Mr. Alfonso Gagliano, Minister of Public Works and Government Services: Honourable senators, I am pleased to join you today as your committee begins its review of Bill C-66.
The proposed amendments represent the next evolutionary step for CMHC as it continues to adapt to meet changing needs. The amendments will enable the Corporation to carry out the new mandate given to it by our government.
[English]
This new mandate gives a sharper and more modern focus to CMHC's core activities, those being housing finance, assisted housing, research and information transfer, and export promotion.
This is not the first time that CMHC has had to adapt to a new reality.
[Translation]
In fact, dealing successfully with rapid change is one of CMHC's fundamental elements. The Crown Corporation was originally created at the end of World War II to help returning members of the Canadian armed forces find homes.
I am sure many people are not aware of how challenging this task was. After all, very few houses had been built in Canada during the depression or during the war years. Canada's chartered banks were prohibited by the Bank Act from making residential mortgage loans.
[English]
CMHC stepped in and dealt with this difficult situation. Along the way, it contributed to the development of Canada's homebuilding sector and helped to bring the chartered banks into the residential mortgage business. As the private sector gained the ability to respond to these and other housing needs, CMHC would find new challenges to address, thereby fostering one of the best housed nations in the world.
[Translation]
Since that time, the Corporation has made the transition from building homes to facilitating community development, to financing home buying, to conducting research into materials and the building standards, and housing export development.
Over the years, CMHC has worked with aboriginal groups and continues to work with them to respond, where possible, with information, new financing, skill development and other initiatives that will encourage investment and solutions to the housing challenges faced by aboriginal communities across Canada.
[English]
These amendments are simply the latest chapter in this evolutionary process. To begin with, they will strengthen CMHC's mortgage loan insurance program to better address a more competitive and fast-paced housing finance market.
CMHC's mortgage loan insurance enables many Canadians in every region of Canada to buy a home with as little as a 5 per cent downpayment. The corporation also works to increase the supply of low-cost funds available for homebuyers through mortgage-backed securities.
[Translation]
Thanks to CMHC, more Canadians are able to fulfill the dream of homeownership. In fact, in the last year alone, over 300,000 families and individuals were able to buy homes thanks to the support of CMHC.
From our work in committee and through the debates surrounding Bill C-66 in the House of Commons, we have heard concerns about unfair competition related to mortgage loan insurance. I can assure you that Bill C-66 will serve to promote fairer competition by requiring CMHC, like GE, to make a payment to the Government of Canada toward its backing of mortgage insurance. In your study of this bill, you will also see that CMHC follows much the same regulatory regime as private mortgage loan insurers. For example, CMHC puts aside financial reserves comparable to what is required of the private sector.
[English]
In addition to encouraging fair competition, I wish to emphasize that, unlike the private insurers, CMHC also pursues a public policy role that requires it to provide mortgage loan insurance to Canadians across the country, regardless of where they live.
The proposed amendments will simplify the National Housing Act by removing unnecessary restrictions. This will enable CMHC to respond quickly to the housing needs of Canadians and to opportunities in the market.
[Translation]
As a result of the changes in Bill C-66, CMHC would have the flexibility to support many new home financing products such as reverse equity mortgages and needs such as non-mortgage financing for remote areas.
The new legislation has other benefits. Canadians want a more efficient and effective government, one that makes the best use of its financial resources. Bill C-66 will enable a better use of the federal contribution to social housing.
[English]
Our goal is to streamline the administration of social housing to encourage the best possible use of public funds. At the same time, we will increase the flexibility of programs to allow them to better address local needs.
The Government of Canada will continue to uphold the fundamental principles of the accountability framework designed to ensure that federal funding for social housing, currently at $1.9 billion per year, continues to be used for housing the needy.
Finally, I should like to discuss CMHC's growing role in export promotion. Exports are the key to Canada's future prosperity. As one of the world's best-housed nations, Canada has a lot to offer in terms of sharing our know-how, housing products and technologies.
[Translation]
As one of the world's best-housed nations, Canada has a lot to offer in terms of sharing our know-how, housing products and technologies.
As a mentioned earlier, the Corporation has a history of helping to build a strong housing sector in Canada. The Canadian housing industry will continue to prosper and provide jobs for Canadians long into the future if it takes advantage of international opportunities. The amendments in Bill C-66 strengthen CMHC's role in assisting the industry to seek out new markets.
[English]
Another concern that was raised in the debates of the House of Commons relates to CMHC's role in export promotion. Again, let me assure honourable senators that, as a member of Team Canada, CMHC works in partnership with other federal and provincial agencies in this endeavour. The corporation participates in Team Canada trade missions, organizes its own missions, conducts market research and plays a representational role on behalf of the Canadian housing industry.
CMHC is also assisting foreign countries to establish housing systems and infrastructure so that Canadian housing firms can take advantage of business opportunities that arise.
[Translation]
In the relatively short time that CMHC has been involved in this area, Canadian housing companies have benefited. They have expressed their appreciation for the focused role that the Corporation plays in the international business development program. Export promotion is the fourth pillar of the Corporation's new mandate, one which holds great promise for all of us.
[English]
As you can see, the amendments contained in Bill C-66 are designed to modernize various aspects of the work done by Canada Mortgage and Housing Corporation. As one of the oldest Crown corporations, CMHC is a pioneer. As such, it has laid the groundwork for the successful launch of other organizations and, in the process, it has introduced governments to a new way of delivering services.
[Translation]
Ideally, Crown Corporation are both efficient and effective. Efficient, in that they make minimal use of public resources, and effective, in that they deliver high-quality services to Canadians. CMHC succeeds on both levels. With these amendments, CMHC will continue to be home to Canadians as we move into a new century.
Senator Lavoie-Roux: You stated on several occasions that Canada is one of the world's best-housed nations. You must not get around Montreal very much, or any of the other major cities in the country, for that matter. I wish I felt the same way you did, but I think your statement might be somewhat premature, considering the number of people in this country who live in substandard housing. On what do you base this assertion?
Mr. Gagliano: I most certainly do get around Montreal quite often, since I represent an eastend riding. I am well aware of the problem. Over the past year and a half, we have invested $300 million in the RRAP program. I believe that Canada is one of the world's best-housed nations compared to other countries. Surely you have had an opportunity to visit other countries, many of which come calling on us everyday for assistance in implementing mortgage insurance programs or other Canadian systems. Essentially, that is what I was trying to say.
Senator Lavoie-Roux: There are serious housing problems in this country, in Toronto, in Halifax and in St. John's, Newfoundland.
Mr. Gagliano: We are aware of the problems faced by the homeless. CMHC is examining the problem and has participated in various conferences studying this phenomenon. Moreover, this year, by providing an additional $50 million to the RRAP program, we have modified the rules to provide assistance to the homeless through the RRAP program.
Senator Lavoie-Roux: I was not referring to the homeless. I realize that it is impossible to build a home for each homeless person. I was talking about the population in general.
[English]
Senator Cohen: When I read the bill I saw that it contains a compelling argument and that it will create a level playing field for CMHC in competing with the private sector.
The work that I do is in the field of poverty. When I look at this bill, I can only see it through the lens of the homeless. Something jumped right out at me, and that is the lack of a quick response to the housing needs of Canadians. I do not see any quick response to the crisis that the homeless are facing in Canada today. I know we have a new minister who is from my province but as yet we have had no response. I realize that there are many positive things in this bill but the negative things are glaring.
I should like to hear the minister's response, please.
Mr. Gagliano: I am very concerned about the homeless situation. I have shared my concern publicly on many occasions. However, we must admit that homelessness is not just a housing problem. Homelessness is a social problem that not only the federal government must address but also the provinces and the municipalities.
We are trying to address the problem cooperatively. For example, we decided that we would open up our RRAP program to address some projects for the homeless. In addition, we are working with different Crown corporations, trying to find buildings or lands that are not being used. We are also working with community groups and provinces.
CMHC has established a program called the Canadian Centre for Public-Private Partnerships in Housing. Through this program, we have created many units. I agree that we have not created enough. We need to create more. We are working together to expand this program and now we must work with the provinces and the municipalities.
My colleague Claudette Bradshaw will be the co-ordinator, because for the federal government, it involves not just CMHC, but various departments such as Health, Justice and Human Resources Development. She will be able to coordinate all the departments and also work with the provincial authorities and municipalities in the hope that in the near future we will have a definite, clear and complete response to this terrible problem that is called homelessness.
Senator Cohen: CMHC had a glorious history, but after 1993, everything stopped. I realize that you are building homes and I realize that there is a beginning, but the homes that were built before 1993 are in terrible condition. There has been no improvement anywhere. I know that the homeless are not just people in poverty, but it is deplorable and I really had to make this statement. Perhaps this does not address the bill as it stands, but I would think that when the government is making amendments to an act when we all know that there is a crisis in housing, somewhere homelessness would have been addressed.
Senator Doody: Mr. Minister, one of the activities of CMHC is the mortgage insurance business. I understand that CMHC has only one competitor in the private sector. We keep hearing that one of the objectives of this bill is to achieve a level playing field. It seems to me that CMHC, as a Crown corporation, has a decided advantage over its only competitor, GE Capital Mortgage Insurance Corporation, inasmuch as there is a 100 per cent guarantee from government for CMHC's exposures while GE gets only a 90 per cent guarantee. Obviously, it costs GE a great deal more money up front to do the same type of business.
Is there some reason for this? Is it government policy to provide an advantage to the Crown corporation and thus discourage private industry from getting involved in the mortgage insurance business? What is the government's policy in this regard? Is it the hope or the objective of government to create a level playing field?
Mr. Gagliano: I believe that with the amendments in the bill, CMHC will have a level playing field. They will have to have the same guarantee protections and must pay dividends to the shareholder, the Government of Canada. We are bringing CMHC as close as possible to the private sector.
I had the opportunity to meet the president of GE. We discussed this concern that you are posing in your question. I believe you will have an occasion later on, when you meet financial officials, to discuss this situation. I know that GE has been talking to officials from the Department of Finance.
I should like to point out one thing. If this bill is approved and becomes law, there will be a level playing field. As minister responsible on behalf of the shareholders, I can still instruct and direct CMHC to have activity in a specific sector in the country or to carry out a specific project that will help ensure more housing for the homeless, for example. However, the government cannot give directives to GE. I think there is a difference. Even though this bill will result in a level playing field with the commercial sector, CMHC will still have a public housing responsibility and will respond to government directives that GE is not required to follow.
Senator Doody: There is only one player in the private sector, for reasons that I cannot quite understand, and they handle a relatively small percentage of the business.
Is it the government's intention to see that both the private sector and CMHC receive the same level of government guarantee? Will they both get 100 per cent or will they both get 90 per cent? Or is it the government's intention to continue to favour the Crown corporation?
Mr. Gagliano: I have no problem with that. I have said so before. However, the Department of Finance is also involved. GE should go before the Finance officials to discuss their licence and the guarantee that they must provide. I am responsible for CMHC and I want to ensure that CMHC has a level playing field.
Senator Doody: Are you saying that you have no objection to seeing both treated equally?
Mr. Gagliano: I have no objection to that, but I wish to put on the record that while I can direct public housing policy through CMHC, I cannot direct it through GE. Perhaps that should be taken into consideration.
Senator Doody: It seems that Bill C-66 will increase CMHC's borrowing and lending powers. It is not clearly defined but the bill does seem to increase the areas in which CMHC can operate. Is it the intention that CMHC will increase its borrowing and lending activities? Will it go further into the field of finance? Will it, for instance, now issue securities based on housing loans and that sort of thing?
Perhaps I am reading the bill incorrectly, but it seems to me that CMHC can take from this bill the authority to do just about anything it wishes within the field of housing financing. Is that correct? Is it CMHC's intention to go further out into the field or is it government's intention to try to bring it back?
Mr. Gagliano: As I said in my opening remarks, we will definitely be providing CMHC more flexibility in order to have as many projects as possible in the mortgage insurance field, to encourage housing activity in the country. To ensure that you have the right explanation, I will ask Ms Kinsley to answer your question in more detail.
Ms Karen A. Kinsley, Vice-President, Insurance, Canada Mortgage and Housing Corporation: We have fairly broad financial powers today. We have a large borrowing program that is in place under our current authorities. The act and the amendments to the act are giving us a range of tools. We are not trying to set the actual policy regarding how we will use the tools in the act itself.
One of the amendments contained in the act deals with the tool that is to continue our borrowing authorities. We have not decided how that tool will be used. In fact, it could be used differently from time to time depending on the environment. The answer is that we do we have the tools. They are similar to the tools we actually exercise today. However, how they will be applied going forward will be a matter of policy at the time.
Senator Doody: You have not yet decided which areas you may move into, if at all; is that correct?
Ms Kinsley: Yes.
Senator Doody: Nevertheless, you want the authority to do so in the future, should you decide to do so. This is sort of a blank cheque, is it not?
Ms Kinsley: The policy is still shared by the Government of Canada and the shareholder. Even if we wanted to do something with the tools that are available, it would require the shareholder to have input.
Senator Doody: How is this review done? Is it done through submission to Parliament or submission to the minister, or is it done in-house at CMHC? Is there an oversight on this at all?
Ms Kinsley: It depends on what we are proposing as to what level within government it would be approved. We have a corporate planning process that requires us to outline the business plan of CMHC. That is approved by the minister and the government.
Mr. Gagliano: Different levels could involve myself, as minister, the cabinet or Treasury Board. The corporation definitely will be required to report to Treasury Board on a regular basis.
Senator Butts: Like Senator Cohen, I wanted to speak to something that was not addressed in your presentation but is important to many of my people, and that is your relationship with co-op housing. I do not know how much of it is being done now or being administered now by the province. I should like to know if you will ever get back into co-op housing projects.
Mr. Gagliano: Co-op projects are divided about 60-40, depending on the province. There are a good number of co-op projects that are provincial only, some that are shared provincially and federally and some that are only federal. When the government took the decision to transfer social housing to the province, the co-ops were part of that transfer. The provinces that have signed the transfer have accepted co-ops.
We have had many meetings with the co-op authorities in the past year. After looking into the matter, about two months ago I decided that co-ops were different because they had their own provincial and national system. They were so different from all the other social housing projects that, when I began negotiations with the province of Ontario to transfer social housing in Ontario, co-ops were not part of the negotiations. Therefore, CMHC will continue to look after the federal co-ops for the other provinces.
Presently, the federal co-op movement is trying to have its own administration. I favour the idea that one day we will have in Canada one co-op administration that will manage both the federal and the provincial portions. The idea here is to have one body that manages to avoid duplication and so on. We are not there yet. Once I finish transferring social housing to the other provinces -- that is, Ontario, British Columbia, Alberta and Quebec -- then the Government of Canada will be in a position to sit down with the co-op movement and with the provinces to see if we can set up one co-op housing board in Canada to look after all the co-op housing projects instead of having it spread over three administrations, federal, provincial and municipal.
Senator Butts: Therefore, you hope to be able to move on that for other provinces that cannot to do it on their own. Many participants in co-op housing fear what will happen to them -- especially in provinces where there will not be any co-op housing if there is no federal participation. That is the worry.
Mr. Gagliano: Those provinces already accepted the social housing transfer to the co-ops. Let me assure you at the Senate and all Canadians that in the transfer of social housing to the provinces, all existing projects are guaranteed. Existing agreements cannot be changed unilaterally. It requires consent from the co-op authority and the province. In the agreement there is an accountability provision; the province must be accountable. The provinces that did not have a transfer were Alberta, British Columbia, Quebec and Ontario. Except for Quebec, I have no problem retaining the co-ops of the other provinces at CMHC.
[Translation]
Co-operative housing federation authorities in Quebec have said that they would like to be placed under provincial jurisdiction. We will look into that during the negotiations.
[English]
Senator Butts: The problem is that in the very poor provinces they may keep the contract that you had but there will never be new ones.
Mr. Gagliano: That involves another debate. For years, the provinces have been asking that the Government of Canada place social housing under the provincial umbrella and that the federal government exit from social housing. That was the decision of the government in the 1996 budget. Since then, we have been trying to negotiate an agreement.
In terms of new projects, definitely things change. We should recognize that there is a need for housing. We must be creative and find new methods of building the affordable housing units that people need. We will be working with the provinces on that. Along with CMHC officials, I will be looking at how, for example, the public partnership program, which has been a pilot project, could be extend with the participation of the provinces. Perhaps we can then meet the need for affordable housing required in the country.
The Chairman: To follow up on the questions about co-op housing, tomorrow night, representatives from the Co-operative Housing Federation of Canada will be here. I do not know what they will say; however, one of the great advantages of being in the Senate is that I do know what they said at the House of Commons committee in regard to this bill, and so do you. I will anticipate their appearance by a few hours by drawing your attention to a couple of things that they said. I will try to summarize it briefly.
They spoke about what they thought might be unintended consequences of this legislation. In their brief to the Commons committee they stated that regarding rental rehabilitation assistance, references to non-profit recipients have been removed along with the requirement that recipients charge a fair rent. What purposes are those changes intended to serve?
Then they said that with respect to cooperative housing, Bill C-66 removes references to their non-profit status and gives CMHC wide new powers to set conditions on occupancy, disposal and leasing of a project.
They asked why the definition of an eligible contribution recipient has been removed. That term appears in the operating agreements of many communities developed under section 95.
The representatives from the Co-operative Housing Federation of Canada summed up their presentation by asking the members of the committee over there to seek clear answers to three questions that I will repeat here. As I say, I am sure you and your officials have taken note of this and will have some comments to make.
First, will Bill C-66 impede the federal government from acting now or in the future to alleviate Canada's housing need? The second question addresses Senator Butts' point: Is it intended to allow provinces to alter existing statutory requirements retroactively? Third, if not, why does the bill empower CMHC to waive existing NHA provisions for existing programs and to allow provinces, in turn, to waive them?
I will stop there and invite you and your officials to comment on those submissions.
Mr. Gagliano: In every meeting I have had with the co-op officials, they have expressed this fear which has built up over time. They feel that if we transfer social housing in general to the provinces, then automatically the provinces will not respect their agreements. Regarding the transfer of social housing to the provinces, we went so far as to put in a clause that no existing commitment that we have, whether it is with co-ops or other social housing projects, can be changed unilaterally until its end. That is clear.
A province can sit down with the social housing co-ops or other projects and discuss the changes. If those groups agree with the province, those changes can be made. However, no unilateral change can be made. We have repeated this so many times it sounds like a broken record. Unfortunately, they always come with that fear that this is a downloading to the provinces and the provinces will close or modify everything.
In terms of CMHC and this new administration, we know very well how long the process is to amend legislation. We are looking into the future. We must build new programs to answer the pressing need of affordable housing. We definitely cannot do it the way we used to do it. We used to put in money and build houses and distribute them. Nobody is expecting us to do that anymore.
We need programs with public and private partnerships. Private enterprise must work with the provinces, with municipal and federal and other community organizations to build projects. We definitely need more latitude to find and complete such new projects. We must be more creative. Financial resources are not as great as they once were.
For the details of those three questions, Mr. Stewart can respond.
The Chairman: In particular, they expressed concerns about the changes made in the act.
Mr. Douglas A. Stewart, Vice-President, Strategy, Canada Mortgage and Housing Corporation: The previous NHA has served us well over time but, in the social housing areas, it contains layer after layer of detail. Those details have been enacted over the years to put in place various housing programs. The new NHA will remove much of that detail. That may be part of the reason for the Co-operative Housing Federation of Canada's question. That change will make it easier for the federal government to be involved and will not impede any housing activity that it may choose to begin.
I can give you a good example. In the act at present, Canada Mortgage and Housing Corporation is permitted to make forgivable loans with respect to the RRAP program, which is a rehabilitation program. We cannot make a grant. That has caused problems when we have tried to meld our programs with provincial programs. For example, the Quebec program provides for a grant and our program provides for a forgivable loan. It was very difficult to put together the federal and provincial initiative there. The amendments to the act will take away some of those impediments to working with the provinces.
With respect to the second question, it is not intended that this bill would permit the retroactive changing of the rules that have governed social housing programs.
The Chairman: They did not suggest that it was intended. In fact, they suggested it would be an unintended consequence. What do you say about that?
Mr. Stewart: Once again, I think the minister has said it best. Those existing arrangements are governed by agreements. Those agreements will continue after the transfer of the administration of social housing to the provinces.
I can offer a good example of how provinces have been using the new agreements. In Saskatchewan, we have transferred administration. There were some existing problems with some co-op programs. The province offered the co-ops a new funding regime. I believe 70 per cent of the co-ops accepted it and 30 per cent of the co-ops declined. Life went on for those who did not. That is the way we see it working in the future with other provinces as well.
The third question is pretty much the same. These important legal agreements must be honoured. Any changes must have the consent of the non-profit or housing corporations to whom the subsidies are going.
Senator LeBreton: I refer to your statement, Mr. Minister, and I am seeking clarification. On the bottom of page 2, you state:
I can assure you that Bill C-66 will serve to promote fairer competition by requiring CMHC, like GE, to make a payment to the Government of Canada for its backing mortgage insurance. In your study of this Bill, you will also see that CMHC follows much the same regulatory regime as private mortgage loan insurers.
You say "much the same" but not "the same."
In your responses to Senator Doody, you seemed to indicate that you had no difficulty with them following the same regulatory regime but that it was a matter for the Department of Finance. Is that correct? Did I hear you correctly there?
Mr. Gagliano: Yes, you did. It is the financial institution that gives the licence or the authorization as it may be called. It sets the conditions of GE Capital. Therefore, I have no authority. I met with GE officials and said I have no objection; I suggested that they discuss with the Department of Finance the changes that the department can perhaps make to their licence.
The difference seems to be the 100 per cent and the 90 per cent on which GE will take direction from their shareholders, which is the public at large. CMHC will take direction from the federal government, which has a responsibility for public housing.
No one will force GE to insure housing projects in the North where the market could be different than in other provinces. Since we have a public policy role, I direct CMHC to insure housing projects in the North. That is why the Government of Canada guarantees 100 per cent.
Again, the question is whether it is insurance or a financial institution. I would not dare even to approach the discussion. I am not an expert, nor do I have authority to do such a thing. I stay away from banks and insurance companies.
Senator LeBreton: You said that CMHC also pursues a public policy role that requires it to provide mortgage loan insurance to Canadians across the country regardless of where they live. Does that mean that others cannot or will not? You talk about encouraging fair competition. Have you any reason to believe that in this age of high technology and money moving around with a flick of a switch, other companies would not provide the services to other parts of the country?
Mr. Gagliano: They could; they are able to. However, every company is bound by its shareholders and the shareholders' return. Some projects might be quite risky and they may decide not to go there. They are not bound by a government that has a public policy role.
CMHC is still a Crown corporation. We are changing with this bill to ensure a level playing field, but it still remains a Crown corporation. Therefore, government can direct, and they have that responsibility of going anywhere in Canada. Canadians need affordable housing. The market might decide a particular project is not a good risk project for the financial market, but we might decide that it is a good project for Canadians and so instruct CMHC. That is the difference.
However, in regard to GE, I think they can be as capable as CMHC. So far there is only one, but I hope there will be others. Again, unlike CMHC, they are not bound by the public housing role.
Senator LeBreton: In the bill, there is a requirement that the structure of the board of directors of CMHC be changed. It removes the requirement that one CMHC vice-president and two public servants sit on the board. Three more people are brought in from the private sector or from the public at large. What was the rationale for the change in the structure of the board?
Mr. Gagliano: I believe CMHC is the only Crown corporation that still requires that civil servants sit on the board. It is not that we do not appreciate the service of the two civil servants who are now on the board, but we are amending the bill to bring the corporation in line with the others. I do not think that I or any of my successors will come before Parliament often to amend the bill. I would think there are quite competent people in the private sector who could be members of the board. That is the only reason for the change.
Senator LeBreton: Does that not argue against what you said a few moments ago, that CMHC is a Crown corporation and that there is still some direction that must be provided by the government?
Mr. Gagliano: Canada Post is a Crown corporation and the mint is a Crown corporation. There are enough people in the private sector who have the qualifications and expertise to sit on the boards and make the right decisions. Civil servants do a great job in advising ministers and advising government in general. However, we wish to have a Crown corporation that is at a certain distance from government and can be managed with the expertise of the private sector and can be more commercial.
Those positions do not need to be reserved for civil servants. At a certain time, if we need to appoint civil servants to sit on the board, we could do it by an Order in Council.
Senator LeBreton: It does not exclude public servants.
Mr. Gagliano: No. We simply took away the exclusivity that already existed.
[Translation]
Senator Gill: Occasionally, CMHC officials participate in Canadian trade missions abroad. On these occasions, they have an opportunity to promote the Corporation's know-how and skills. I imagine Bill C-66 supports endeavors of this nature. How exactly does the proposed legislation do this and what benefits should we associate with this initiative?
Mr. Gagliano: Developing this sector is very important. The Team Canada approach has worked very well and has opened many doors for Canadian companies. Housing is a very important sector. CMHC's new mandate focuses on mortgage insurance, research, export development and promotion. That is the focus of this bill. It follows up on what the Corporation has been doing since 1996.
CMHC has a well-structured division in place. It even has an advisory board that focuses on product and services development and export.
Last October, I travel to Chile with a Canadian delegation of representatives from several provinces. Recently, the newspapers reported how one Quebec company participating in that trade mission had signed a major contract valued at $25 million. That is a very positive development for the Quebec community. We have met with a number of foreign ministers responsible for housing. They look to us for help in establishing mortgage insurance and other housing systems. Canada's expertise in this area is highly valued. We are helping them to develop and implement a building code similar to ours. This will facilitate the process of exporting products and services to these countries. Exceptional work is being done, thanks to the many experts working for CMHC. Many positive things are being accomplished.
Senator Gill: As everyone knows, legislation prohibits the pledging of real property in aboriginal communities or accepting guarantees in respect of native lands on reserves.
As I understand it, Bill C-66 seeks to promote new housing construction in aboriginal communities. How do you propose to do this?
Mr. Gagliano: The bill makes provision for legislative amendments which will ensure that mortgages are available for housing in this area.
[English]
Ms Kinsley: Today, in order to do housing on reserve, we must get a guarantee from the Department of Indian Affairs and Northern Development. As you pointed out, one cannot pledge real estate property on reserve. We see a number of banks wanting to go on reserve and do private lending to foster homeownership on reserve. Many bands are quite wealthy, and they would be able to provide a band guarantee for the mortgage rather than the property itself. However, in order for those banks to continue to do that business, they need us to provide mortgage insurance.
Currently, we cannot do that under the law because we must take back a mortgage as security for our insurance. The new bill, or the amendments, will allow us to accept a band guarantee in support of housing rather than the mortgage itself. It will facilitate different forms of lending on reserve from the traditional form that is in place today. Hopefully, that will encourage more housing where it is badly needed.
Senator Doody: I should like some clarification of the minister's answer to a question from Senator LeBreton. Mr. Minister, you gave me the impression that GE, which is the only competition that CMHC has in the insurance business, may have refused to insure some mortgages in the North. Is that an actual fact? I had the impression that GE is quite capable and anxious, indeed, to involve itself in the insurance business in all areas of the country. I did not know that it had occasion to refuse to insure a mortgage because of a risk factor. If that is so, has CMHC been obliged to pick up that which was thought to be too great a risk?
Mr. Gagliano: I did not mean to say that they refused any project in the North. I gave the North as an example of a very great risk for the financial markets. It is not Toronto, Vancouver, Montreal or any major urban centre. I am not aware that they have refused any project. It is just a question of maybe they are doing it, maybe they did it and maybe they will do it. No one will tell them what markets they should be in. They have shareholders and a market value. CMHC, on the other hand, is a Crown corporation. That is the difference. I have no knowledge of whether they refused any case.
Senator Cohen: I am seeking a clarification. I have a list of four provinces and one territory that were supportive of the new bill. What was the reaction of the other provinces? Speaking of Team Canada, I was wondering what the rest of the team felt.
Mr. Marc Rochon, President, Canada Mortgage and Housing Corporation: We have now signed with seven jurisdictions, territories and provinces and are negotiating with the remainder. As part of their negotiating tactics, they are silent at this point, senator.
Senator Poy: Mr. Stewart, you spoke about forgivable loans versus grants. The CMHC grants forgivable loans. In your experience, what is the repayment program from borrowers who have forgivable loans? If they understand that the loan is forgivable, why should they pay it?
Mr. Stewart: We are talking about the RRAP program and about specific wording in the bill that allows us to make loans and then forgive them. That is how we give the grant. A forgivable loan and a grant are the same thing. When we try to work our programs with provincial programs, sometimes we run into difficulties dealing with these two terms.
For RRAP loans, there has been a very good record for the repayable portion, but if that part of the loan is forgiven it would not be repaid.
The effect of the bill is to give us greater freedom to provide that assistance in different forms.
Senator Poy: In effect, it is really a grant.
Mr. Stewart: Yes, but it is called a loan, and that is the problem.
The Chairman: At this time, I should like to thank the minister for attending this morning.
Honourable senators, our next witnesses are representatives of the Department of Finance. These witnesses are here at our invitation. The reasons for that will become apparent to members of the committee from the questions and answers concerning the guarantee arrangements that apply respectively to CMHC and to its private sector competitors. There may be other questions of a technical nature that senators may wish to put to these officials from Finance.
Do you have an opening statement to make?
Mr. Charles Seeto, Director, Financial Sector Division, Finance Canada: No, we do not. We can speak only to the arrangement we have with GE. Personally, I am not familiar with Bill C-66.
The Chairman: I appreciate that. What is the rationale for the 90 per cent guarantee with GE Capital as distinct from the 100 per cent guarantee given to CMHC?
Mr. Seeto: The 90 per cent guarantee is part of the agreement that the Government of Canada signed with the Mortgage Insurance Company of Canada back in January 1991. That guarantee was introduced by the government at that time to allow MICC to continue to compete for the mortgage insurance market following the implementation of the 1988 BIS Capital Accord.
Prior to that accord, CMHC- and MICC-insured mortgages were treated identically by the financial institutions. However, under the 1988 accord, uninsured and privately insured mortgages were given a 15 per cent risk rating, which meant financial institutions that lended had to set aside capital equal to 44 per cent of their mortgage loans insured by MICC.
In contrast, mortgages insured by CMHC were given a zero risk rating because CMHC is an agent of Her Majesty and the Government of Canada, which meant that there were no capital implications for financial institutions. The guarantee at that time allowed financial institutions to decrease the capital required for MICC-insured mortgages from 4 per cent to 0.4 per cent of their mortgage loans.
MICC then ran into some difficulties. It was prohibited from writing new business starting in March 1993. Subsequently, it sold its residential mortgage business to GE Capital. GE asked the government to have the agreement with MICC transferred to it. That was done in January 1995.
The Chairman: From the point of view of the Department of Finance, what would be the implications of having the same guarantee apply to both CMHC and GE Capital?
Mr. Seeto: At that time, the agreement was to allow MICC to compete with CMHC. Our understanding is that GE is competing with CMHC at this point in time. In fact, we understand it is increasing its market share compared with CMHC.
Senator LeBreton: Were the witnesses from the Department of Finance in the room when the Minister of Public Works and Government Services made his presentation?
Mr. Seeto: Only toward the end of the presentation.
Senator LeBreton: You are saying that they wanted the agreement transferred, which took place in January 1995.
Mr. Seeto: It is the same agreement. I do not think anything has changed.
Senator LeBreton: Have conditions now changed such that they would cause you to revisit that issue? The minister talked about the efforts of this bill in promoting fair competition. He went on to say that the bill follows much the same regulatory regime as private mortgage insurers. I pointed out to him that although it is much the same, it is not the same. I asked him specifically if he was saying whether it was the Department of Finance and not CMHC that was the reason there are these figures of 100 per cent and 90 per cent. He indicated that it was a Department of Finance issue, not his, and that he had no problem with the same guarantees being given to both, since they are both competing.
Mr. Seeto: I should like to point out, senator, that since 1991 it has been 100 per cent for CMHC and 90 per cent for GE. That was the agreement that GE entered into voluntarily in 1995, which is when it bought MICC's business. Nothing has really changed in terms of the guarantee and CMHC, MICC and GE since 1991.
Senator LeBreton: Something has changed. We have this new bill that promotes private sector initiatives. When they were writing this bill, why did they not just level the playing field?
Mr. Seeto: I was just pointing out that this element of the guarantee has not changed.
Senator LeBreton: When we questioned the minister on the bill, he said that he would not have a problem if it did change. I am wondering whether Finance agrees with the minister and why they feel they should leave it at 100 per cent compared with 90 per cent.
Mr. Seeto: I suppose the question is whether we should review the whole agreement at this point in time. As I explained earlier, this was to allow them to compete. At this point in time, is GE not able to compete with CMHC? We do not see any evidence that that is the case today.
Senator LeBreton: If that is the case, why not have a completely level playing field so that the same conditions are available to both the private sector and the Crown corporation? What is the rationale for the difference? This bill puts us into a new situation in terms of mortgage insurance. Since the financial markets move so quickly now, why not have a level playing field?
Mr. Seeto: I cannot answer that question at this time.
Senator LeBreton: The Minister of Public Works and Government Services, who is sponsoring the bill, seems to be indicating that he would have no problem with that.
The Chairman: Is there a policy problem in the Department of Finance? Is there a policy reason that you are aware of for not having the same guarantee apply to both? The minister responsible for CMHC would have no difficulty with that.
Mr. Seeto: As I explained, you must look at the whole arrangement that allows them to compete. The question today is whether or not they can still compete. The arrangement has been in place since 1991. As I understand it, they have been increasing their market share.
The Chairman: Yes, we must look at the whole arrangement and we must look at this whole bill as well. There are other features of the bill that I am sure you are familiar with that have to do with the proposed fee that is paid by CMHC to the Crown and the difference in the regimes that apply to the Crown corporation on the one hand and GE Capital on the other. As you know, they are subject to the Insurance Companies Act and to OSFI. I presume your department would have been very much involved in those provisions of the bill and in the setting of the fee that is to be paid by CMHC to the government. Is that the case?
Mr. Seeto: Other people in the department were involved. However, you point out that requiring CMHC to pay a fee means that the cost of mortgages for CMHC, relatively speaking, has gone up.
The Chairman: No. You understand that the government is putting this forward as evidence of its desire, as Senator LeBreton said, to level the playing field, to create a more competitive environment. They say, "GE Capital, of course, is subject to various rules and requirements. Therefore, in order to level that playing field, we will require CMHC to pay a fee."
It comes to $197 million, or so GE Capital claimed when they were at the Commons committee.
I wanted to ask you, first, what the rate of return is being used in this calculation and, second, whether the rate of return should not be similar for the two competitors. Do you know anything about this?
Mr. Seeto: I do not know the details of that arrangement. I know there are arrangements to pay fees. Now that CMHC is paying a fee that it did not pay in the past, one could argue that you now have a more level playing field between CMHC and GE. Do you need to go further? CMHC is a public corporation and GE is a private corporation, so they are subject to different costs. They are not identical in the way they are governed, for example. Therefore, they are not subject to the same costs. Is GE allowed to compete fairly under the current arrangements they have in place? The evidence seems to indicate that they are able to compete.
The Chairman: With respect, I think the question is whether or not there is fair competition and whether or not this bill provides for fair competition. Apparently, you have no answer.
What do you know about this provision of the bill that would enable the Governor in Council to increase the authorized capital of CMHC? Hitherto, CMHC could only increase its authorized capital by going to Parliament and changing the legislation. It is now provided in this bill, although I cannot cite the exact clause, that that will now be done by fiat of the cabinet. What do you know about that? What is the rationale for that?
Mr. Seeto: I do not know the answer to that question. Perhaps someone from CMHC could answer that question.
The Chairman: Could your friend from Financial Institutions not answer that?
Mr. Seeto: We do not know the answer to that question.
The Chairman: I asked the Library of Parliament to do a bit of research and find out for me what regime applies to other federal Crown corporations, and it appears that CMHC would be the first that would be able to increase its authorized capital by way of a cabinet order. The others they have studied -- Business Development Bank, Export Development Corporation, Farm Credit Corporation -- must go to Parliament to get that done. Some people would consider it a small point, but there has been an incremental weakening of Parliament's control over the government and over these institutions over a period of 30 years, which is why I raised it.
Senator Doody: Mr. Chairman, what our concern boils down to is whether or not this bill does actually create a level playing field. It seems that it does not.
The minister has no objection, he says, to making the playing field level in reality. However, if the witnesses cannot give us any technical or financial reasons for that not happening, then I guess it must be a policy matter that could only be addressed by the minister or his officials. Since the department cannot provide us any technical or financial reasons for this, there is really not much point in pursuing this in the absence of the political side of the department. Am I correct?
Mr. Seeto: I agree with you, senator. That is right.
Senator Doody: I am not surprised.
The Chairman: I was trying to get at the question of whether your position is in the context of some overall policies of the minister and the Department of Finance. It is not clear to me that it is. Your answer has been that it is at 90 per cent because that is the way it has been. That is your answer, is it not?
Mr. Seeto: In a sense, the question is whether we should be reviewing this in the context of what has happened, but for us to make a change, we obviously need some evidence as to why we should.
Senator Doody: The fact of the matter is that if the Mortgage Insurance Company of Canada, which sold its business to GE, had had an 80 per cent agreement in there, then that is what GE would be facing now, and so they should be grateful that the terms were so lenient. Is that fair?
Mr. Seeto: They agreed to the terms, and we do not do this in any other area in the financial sector. As you know, we have Crown corporations out there, such as EDC.
Senator Doody: That was another question. I could ask why we need Crown corporations in the insurance business, but I do not think you want to get into that either.
Mr. Seeto: No. I cannot answer that question.
The Chairman: I thank the officials from the Department of Finance for responding so gracefully to our invitation to appear here today. We appreciate the constraints under which you are operating and we thank you for the information you have been able to give us.
Let me say something to the officials from CMHC, which I forgot to say when the minister was here. I did indicate that tomorrow night we would be hearing witnesses until 9:30 or 10:00 o'clock. I intend, then, to propose to the committee that we embark on clause-by-clause study of the bill on Wednesday, June 9, 1999. Let me make it clear that when we do that, the minister and/or his officials are quite welcome to come here and have the last word. This is a government bill.
Senator Doody: The second-to-last word.
The Chairman: Right. The Senate will have the last word. However, we would be happy to have the minister or any of the officials come here to respond, if they wish, to any of the testimony that we will have heard from various witnesses in the meantime.
Does anyone wish to put questions to the officials from CMHC?
Is there anything that any of you officials would like to add at this point?
Senator LeBreton: Mr. Chairman, I would just suggest, since the CMHC officials are here, that perhaps they could go back to their minister and report what the officials from the Department of Finance said. There seems to be a bit of a conflict here between what the minister is saying and what the Finance officials feel they are able or not able to say.
The Chairman: I am sure they will give the minister a full briefing on this important matter.
Ms Kinsley: I want to clarify a point that you were just debating with the Department of Finance regarding the guarantee. While the minister said it was a matter for the Department of Finance, I think he did have a view about the public policy difference between CMHC's operations and those of the private sector and about the ability of the government to exercise any influence over the private sector in public policy matters. He did express a view that there is that difference.
The Chairman: Thank you very much, Ms Kinsley. We will have an opportunity to explore some of those matters in detail with your private sector competitor when they appear here tomorrow night.
The committee adjourned.