The International Monetary Fund spoke out this week about the mortgage insurance market and mainly, Ottawa’s involvement in insuring mortgages for the banks. While speaking to reporters in Toronto, IMF mission chief, Roberto Cardarelli, said that not only does this put taxpayers at risk, but it’s money that could be put to better use; and it could give banks the wrong kind of incentives for lending.
“We think banks lend too much to mortgages and too little to small and medium enterprises,” said Cardarelli. “We suspect the fact that banks may benefit from government-backed insurance on mortgages than other kinds of lending which, presumably, we think, is going to be more useful for the real economy.”
Should that government guarantee not be there, but private mortgage insurance is instead required, it would be harder for banks to get backing and they may lessen their mortgage lending portfolio quite significantly. That would both take the risk away from taxpayers, as well as get those lending funds into other, more useful investments, according to Cardarelli.
It’s not the first time the subject of privatizing CMHC has come up. Many times our system has been compared to that of Australia’s, who changed from a system similar to ours and moved to privatization. Their economy and housing market has been very steady since the switch. Finance Minister Jim Flaherty also said this year that he’s unsure of how much involvement the Canadian government should have in the mortgage insuring business.
But CIBC deputy chief economist Benjamin Tal says he’s not so sure that this concern around Canada’s mortgage insurance is warranted.
“In this case size matters,” says Tal, saying that that concern was appropriate for the American collapse, but it’s not the same here across the country.
“It is true when securitization dominates the market it is not a very healthy thing, but when it is part of a normally functioning market, it actually helps the economy.”
In its report, IMF also suggested that the Bank of Canada not increase interest rates until household spending drops and spending on exports and investments increase. It also indicated that the Conservatives should be more concerned about increasing economic activity than with balancing the budget. Those remarks came shortly after Finance Minister announced that they were still on track to balance the budget by 2015.