Facade of old bank building Last summer saw the Canadian government tighten mortgage rules and this season saw another attempt to reign in the real estate market: the Canada Mortgage and Housing Corp. (CMHC) is limiting guarantees it offers banks and other lenders on mortgage-backed securities.

The Globe and Mail reported the measure is part of the federal government’s plan to cool the market in an effort to “protect taxpayers from financial risks in the housing sector, further cool lending and add upward pressure to mortgage rates.”

Under the new decision, banks, credit unions and other mortgage lenders will each be restricted to a maximum of $350-million of new guarantees this month under its National Housing Act Mortgage-Backed Securities (NHA MBS) program. According to the CMHC, the new cap comes after “unexpected demand” for guarantees.

Earlier this year, Finance Minister Jim Flaherty said the CMHC could guarantee a maximum of $85-billion worth of new NHA MBS this year. But by the end of last month, lenders had already issued $66-billion worth of the securities, compared to the $76-billion issued for all of 2012. That’s why the CMHC is issuing the $350 million cut off effective immediately as it comes up with a formal application process for the rest of the year.

Flaherty also restricted bank’s ability to buy bulk insurance from the CMHC this year and also cut back on government-backed insurance in securities sold by the private sector. These efforts are meant to transfer more of the risk of mortgage defaults onto the lender instead of Ottawa.

 Photo: Kentucky Photo File/Flickr

Developments featured in this article

More Like This

Facebook Chatter