Housing Finance Framework

Economic Action Plan 2013 will implement changes to limit the use of portfolio insurance and prohibit the use of any government-backed insured mortgage as collateral in securitization vehicles that are not sponsored by Canada Mortgage and Housing Corporation.

Mortgage insurance is a significant component of Canada’s financial stability framework, and also serves to facilitate Canadian homebuyers’ access to mortgage credit. This is especially true where homebuyers make a down payment of less than 20% of the purchase price of the property as federally regulated lenders are required by law to obtain mortgage insurance on these high loan-to-value mortgages. This insurance is backed by Canadian taxpayers.

Consistent with actions taken relative to high-ratio mortgages since 2008, the Government will implement new measures related to insurance of portfolios of low-ratio mortgages.

Financial institutions significantly increased purchases of portfolio insurance during the financial crisis because pools of insured mortgages were more easily used in bank funding vehicles, particularly Canada Mortgage and Housing Corporation (CMHC) securitization programs. More recently, financial institutions have used portfolio insurance for new purposes, such as capital and liquidity management.

With the financial crisis well behind us, the Government is amending the rules for portfolio insurance to increase market discipline in residential lending and reduce taxpayer exposure to the housing sector. The changes will include gradually limiting the insurance of low-ratio mortgages to only those mortgages that will be used in CMHC securitization programs. In addition, the Government intends to prohibit the use of any taxpayer-backed insured mortgage, both high and low ratio, as collateral in securitization vehicles that are not sponsored by CMHC. These measures will restore taxpayer-backed portfolio insurance to its original purpose of allowing access to funding for mortgage assets. The Government will consult with industry stakeholders on implementation details and the timing of these measures.

Financial institutions will continue to have access to a broad array of financing options, including the recently implemented framework for covered bonds.


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