What is the primary purpose of CMHC mortgage default insurance?
Correct Answer
D) To protect lenders against borrower default
CMHC mortgage default insurance protects lenders against financial loss if a borrower defaults on their mortgage payments. This insurance is required for high-ratio mortgages (those with less than 20% down payment) and enables lenders to offer mortgages with smaller down payments while managing their risk exposure.
Why This Is the Correct Answer
Option D is correct because CMHC mortgage default insurance specifically protects lenders against financial loss when borrowers default on their mortgage payments. Under the National Housing Act and CMHC's mandate, this insurance transfers the risk of borrower default from the lending institution to CMHC. When a borrower defaults, CMHC compensates the lender for their losses, allowing lenders to offer high-ratio mortgages with confidence. This protection enables the broader mortgage market to function effectively while maintaining lender liquidity and stability.
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