A document obtained by the Canadian Press reveals that the Department of Finance believes risk-sharing could mean that lenders pull back on mortgage lending to riskier borrowers.
Fewer loans could mean a downturn in housing market activity and a decrease in prices, which could actually increase the risk of mortgage defaults.
No decision is expected on the proposals until later this year or 2018, as data and responses to a consultation process by the government need to be reviewed first.
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If the federal government forces mortgage lenders to carry more of the risk for delinquencies it could have a negative impact on the housing market and lead to an increase in mortgage defaults.