TORONTO, Jan. 31 /CNW/ - The federal government's role in mortgage
markets is pervasive and should be scaled back, while encouraging more
competition in the mortgage insurance business, according to a study
released today by the C.D. Howe Institute. In "What Governments Should
Do in Mortgage Markets," author Finn Poschmann, Vice President,
Research, at the Institute, notes that the mortgage insurance book of
Canada Mortgage and Housing Corporation, CMHC, which is a Crown agency,
now backstops mortgage lending equivalent to more than 30 percent of
gross domestic product. While the net exposure is less than this, the
arrangement subjects Canadian taxpayers to large, ill-defined risks.
Poschmann suggests several steps to manage these risks better.
Accordingly, Poschmann recommends:
That federal policy should limit taxpayer exposure to mortgage lending
risks, by winding back CMHC's role in the direct provision of mortgage
insurance, and allow domestic and foreign providers to take on a larger
role. The agency instead would undertake the reinsurance and
securitization functions that back private insurers.
Independent of whether Ottawa pursues this recommendation, Parliament
should place CMHC under the supervision of the Office of the
Superintendent of Financial Institutions, on a level footing with other
Parliament should also adopt legislation that would support covered
bonds - bonds backed by assets such as mortgages as well as the full
faith and credit of the lending institution - by domestic financial
institutions and clarify creditor arrangements in the event of the
bankruptcy of a federally regulated deposit-taking institution. Such
legislation would help those institutions compete for low-cost capital
and better serve the domestic mortgage lending market.
For the study go to: http://www.cdhowe.org/pdf/commentary_318.pdf
SOURCE C.D. Howe Institute
For further information:
Finn Poschmann, Vice President Research,
Philippe Bergevin, Policy Analyst,
C.D. Howe Institute, 416-865-1904