Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Lensers share of residential mortgage market - Bank of CanadaHousing market and mortgage borrowing have been a thorn on the policymakers seats for a while. No one bar the buyers from buying a home and at the same time nothing stopping them to dig deeper into mortgage debt. From the supervisory perspective this is dangerous. This trend – while exercised by mass – have a possibility of becoming norm. The norm backed by very high underlying risk will make the system vulnerable.

Any attempt to correct the bias may harm businesses. It is a difficult situation to be in. The good news is that the central bank may not think the situation is that bad after all.

Bank of Canada primer on housing highlights many facts and they are listed below.

  • Private securitization peaked at 5% of outstanding mortgages in 2000, but largely disappeared following the crisis.
  • NHA MBS funding reached 20% of outstanding residential mortgages just before the global financial crisis.
  • According to CMHC, the share of CMB issuance by participants other than the six largest banks increased <strong>from 19% to 51%</strong> between 2006 and 2013Q1–Q3.
  • In addition to NHA MBS and CMBs, many smaller lenders obtain significant funding from brokered deposits. While this source of financing has increased competition in the mortgage market, the business model is potentially vulnerable to shifts in the availability of brokered deposits, which are a less-stable source of funding than retail deposits.
  • Mortgages arranged through the broker channel in Canada are generally insured and/or issued by federally regulated financial institutions, which ensures that most of these mortgages are subject to the underwriting standards for mortgage insurance and OSFI’s Guideline B-20.
  • Situation of households headed by individuals younger than 35 years old, since this group accounts for a sizable share of first-time homebuyers. Home ownership has risen noticeably for this age group since 2001, but most of the increase occurred among higher-income households, which tend to be less risky.
  • Amortization period in Canada is often shortened by households making additional payments.
  • Canadian households tend to lock in their borrowing costs by switching from variable to fixed interest rates or by lengthening the term of fixed-rate mortgages at renewal.
  • Canadian mortgages significantly reduces the incentive for households with negative housing equity to default.

The paper concludes

Looking forward, these factors (The regulatory actions like B-20) will increase the resilience of both the financial system and the housing market in Canada in the face of adverse economic or financial shocks.


Now – do you see any housing bubble here?

3 Comments
  1. The interest rate seems to be having an increasing trend through out the year. It doesn’t seems to get lower in the coming days. May be its now the better time for refinancing home mortgage.

  2. Very well researched. I’ glad to know tat Canada is protecting their housing market despite economic challenges.

  3. The blog post is quite interesting. The brief information about Canadian residential mortgages are very important which is never know before this and you shared such nice information through this post…thanks for this post.

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