Our federal government will make approximately $250 million in profit from its $25 billion CMHC mortgage deal with Canadian lenders, announced last week by Finance Minister Jim Flaherty. The first $5 billion of the $25 billion will be released by the federal government to lenders today. The plan is to make more money available for chartered banks, co-operative savings and loans companies, trust companies, credit unions, and loan companies to lend to consumers.
Few private investors have been buying Canadian mortgage securities for the past month, as fall-out of the American mortgage meltdown.
Paradoxically, eligible Canadian lenders are not required to start lending more to consumers as a result of this reverse auction deal. The lenders will compete to sell their mortgages to the Crown’s Canada Mortgage & Housing Corporation. Lenders desperate for cash will sell CMHC mortgage bonds for a higher return than their competition. The auction has no time limit.
The mortgages at auction are not subprime. They are already insured against default by CMHC, so there is minimal risk involved in the government’s purchase. The actual transactions are confidential, but a sales summary will be published. Our federal government will hold the mortgages through CMHC until they mature in 5 years.
If Mr. Flaherty decides to increase the mortgage deal to $100 billion, then our federal government will make approximately $1 billion in profit.
