The first $5 billion round of government mortgage purchases from Canadian banks through the Canada Mortgage and Housing Corporation (CMHC) was very successful, so tomorrow there will be another $7 billion mortgage auction. Thirty mortgage lenders are eligible to offer mortgages for sale to the government. The aim of the auction is to take old mortgages off the banks’ books and give them a new infusion of cash to lend to Canadian consumers. The Canadian federal government originally planned to buy up $25 billion in mortgages altogether, but is now under pressure from the financial community to increase purchases to $200 billion.
Finance Minister Flaherty told reporters the first round of purchases have freed up credit somewhat for consumers, so you may find it a little easier to get a mortgage loan or line of credit this week.Ian de Verteuil is an analyst for BMO Nesbitt Burns. He is satisfied that the mortgage auction will improve the availability of mortgages in the short term. However, Mr. Verteuil wants a review of CMHC’s powers, to prevent it from becoming too Americanized. He is concerned that we could be headed towards a government bail-out of lenders on the scale of the U.S. Fannie Mae and Freddie Mac rescue plan.
Mr. Verteuil writes, “Mortgages should be provided to consumers on the basis of affordability and the ability to repay, not simply because a government-engineered scheme provides cheap, excess funding.” Since Canadian mortgage applicants are already scrutinized and required to produce identification, proof of assets, job verification, and a down payment, his fears seem groundless. CMHC has not announced that it will slacken the requirements for obtaining a mortgage.
