Ottawa floats sticking lenders with share of mortgage default losses
The federal government is OT TAWA looking for feedback on proposed changes to Canada’s mortgage system that would require lenders to take on a modest portion of the losses on insured loans that default.
As part of measures announced this month, the Finance Department on Friday began a four-month consultation period for Canadians to submit their views on the government plans for mortgage rules. Ottawa is considering whether a transfer of risk from taxpayerbacked insurance to private lenders would provide greater stability to the financial sector.
The goal of the proposed changes is to ensure the system “continues to meet the needs of Canadians and support a strong economy … and (to) better protect taxpayers by ensuring that the distribution of risk in the housing finance system is appropriately balanced,” the government said in a statement.
Along with the Canada Mortgage and Housing Corp., a federal agency, there are two major private mortgage insurers — Genworth Financial Mortgage Insurance and Canada Guaranty Mortgage Insurance.
Since the 1950s, the government has required lenders to have mortgage default insurance. At present, insurance is necessary if the mortgage on a property is more than 80 per cent of its value.
Mortgage insurance guarantees the total amount of any default, minus a 10 per cent deductible paid by the private lender. If a lender does not have enough capital to cover the remaining amount of the mortgage, Ottawa — and, ultimately, taxpayers — is responsible for paying the difference.
Ottawa has set a deadline of Feb. 28 for written comments on the proposed changes.
Friday’s announcement on mortgage-risk measures is part of series of changes suggested to help normalize Canada’s housing market, which has seen record-high prices in Vancouver and Toronto as consistently low interest rates have attracted homebuyers — many of whom could find themselves unable to meet their mortgage payment in the event of a plunge in sector — and resulted in personal debt reaching historic levels.
Among the changes announced by Finance Minister Bill Morneau on Oct. 3 was the closing of certain tax loopholes on non-resident real estate investors, and the introduction of a mortgage-rate stress test to ensure prospective homebuyers can meet their payments when lending levels begin to rise.