The federal government may require banks and other mortgage lenders to pay a deductible to protect taxpayers from risky hot housing markets.
Finance minister Bill Morneau and his team are considering the move as one of a range of potential measures being considered in Ottawa’s review of the housing market.
The Globe and Mail reports that the government would be following advice from the IMF and OECD which has urged Canada to have similar safeguards to other countries where mortgage lenders cover up to 90 per cent of the losses from defaulted loans.
The idea was raised by CMHC’s Evan Siddall in 2014 but was rejected by then-finance minister Joe Oliver.
The implication for lenders could be major as some smaller players, especially non-bank lenders, may not have the financial clout to cover losses. It could mean a rise in mortgage rates to cover the additional risk, especially in hot housing markets.
“It’s our view that lender risk-sharing, for instance through a deductible on mortgage insurance, would represent a significant structural change to the way the housing finance system currently works,” Canadian Bankers’ Association president Terry Campbell told the Globe and Mail. “And we think it could make it more complicated and more uncertain.”
Steve Randall has more than three decades of media experience encompassing online, newspapers, magazines, radio, and podcasts. He focuses on insights and news for professionals in finance, real estate, and legal services. Steve writes for multiple Key Media titles in Canada, United States, Australia, and New Zealand.
