Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Somehow all the federal or federally regulated organizations like to let the rabbit loose from their hats before long weekends. CMHC followed the long venerated tradition this time too.

On August 1st it sent a note to the lenders stating that it will be rationing its backstop to the mortgage backed securities sold by the lenders to a maximum of $350 million this month. As a reason it stated there is an  “unexpected demand” for this guarantee.

Obviously the latest move by CMHC was not well received by the recipients – the banks. Doug Porter, chief economist with Bank of Montreal, commented that this move might have been triggered by the latest revival of the Canadian housing market.

Feud of Reality?

But does CMHC actually have any vendetta against the housing recovery? Probably not. Last year it issued a similar statement because it was reaching its limiting target of $600 billion set by the legislation. This time it is no exception. It has already used up about 78% of its this year’s $85 billion budget. There is only $19 billion left in its coffer. To evenly distribute this amount over the rest of the year this is a logical step.

Effects on Borrowers:

The morale of such stories is always “The lenders sadly passed the costs to the borrowers and lived happily ever after.” It is not going to be an exception this time. Canadian banks are heavily guarded from outside competition by a swarm of federal legislations. So, they will not have any issue to pass the buck.

Canadian banking is not like the wireless industry where the mighty incumbents are seeking help from public (Judiciary is also for the people and by the people) to stop foreign competitions from entering Canada.

According to National Bank analyst Peter Routledge – the funding costs for the lenders may go up somewhere between 20 to 65 basis points. That means your mortgage rates are set to rise as well.

Not Everlasting:

This is not going to last very long. Once the market cools down and CMHC secures new funding the normalcy will return. Whether the lenders will reduce the rates can not be predicted at this time.

Conclusion:

End of the day it is all happening under the nose of our government. Obviously they are trying to see how much ratcheting the homeowners can take.  

The problem with present day regulators is that they often miss the stop sign and only stop when some bad things happen. Then they start to loosen up so much that other unwanted surprises will start to show up. Hopefully they will be able to find the right balance before they really strangle the housing market.