New mortgage option available through CMHC

The Nak'askli Band in B.C. has become the first community to take advantage of a new Canadian Mortgage and Housing Corporation (CMHC) pilot project designed to help address the shortage of available housing on reserves across the country.

In November 2005, Nak'askli Chief Leonard Thomas announced the band had signed an agreement to take part in the On-Reserve Homeownership Loan Insurance pilot project. The project is designed to give people living on reserve an opportunity to access insured mortgage financing to buy, build or renovate a home.

With the launch of the new pilot project, CMHC now has two mortgage insurance options it offers to people living on reserve. The other is the Loan Insurance Program On-Reserve with Ministerial Loan Guarantee, explained Steve Mennill, director of product and strategic direction with CMHC.

"Under that product, the band council indirectly is taking all of the liability. So if there's a default under the mortgage, the department of Indian Affairs indemnifies CMHC. So CMHC pays the lender the claim, the department of Indian Affairs pays CMHC the claim, and then they in turn recover any loss from the band. So the band is in theory 100 per cent responsible for any losses under that product," he said.

"Under our new product, CMHC is taking the insurance risk, or most of the insurance risk, and we're being compensated for that by a premium, just like we are for any insurance product that we have. What we do is, in the event of a claim, we pay for 30 per cent in all cases. No matter what, we pay 30 per cent. Which in most cases, we're quite confident, will cover all of the loss, and more than the loss, because really all the band then has to do, the band gets the real estate assets. So they get the house, because they can hold security against the mortgage, whereas CMHC or a private lender cannot because of the way the Indian Act works. So they can sell the house, and as long as they sell the house for at least 70 per cent of the loan balance, which is normally going to be quite possible, they don't lose any money either. So basically the result is that their liability is significantly reduced."

Before someone can benefit from the On-Reserve Homeownership Loan Insurance pilot project, their First Nation council has to enter into a special trust arrangement with CMHC. The Nak'askli Band is the first and only community to enter into such an agreement but, Mennill said talks are currently underway with other First Nations from across the country and it's hoped more announcements will be made soon.
It's estimated there's an on-reserve housing shortage of between 20,000 and 35,000 units, and that number is growing every year. The new CMHC pilot project can be part of the solution to the problem, Mennill said.

"Basically we're looking for mechanisms to try to provide market housing solutions on reserve that are close, as close as we can make them, to the off-reserve situation," he said. "This isn't intended to solve every housing problem on reserve by any means. It's just a tool we use, or one option of hopefully many, that will eventually be available to people living on reserves."

It's anticipated that 10 members of the Nak'askli community will qualify to take part in the pilot project over the next two years. Homebuyers that qualify can get a CMHC loan with a minimum down payment of five per cent. If the loan is for a renovation project, a 10 per cent down payment is required.

For more information about the On-Reserve Homeownership Loan Insurance pilot project, visit the CMHC Web site at www.cmhc.gc.ca.