The Government of Canada plans to maintain the availability of longer-term credit by purchasing up to $25 billion in insured mortgage pools through the Canada Mortgage and Housing Corporation (CMHC).
It hopes this action will help financial institutions raise longer-term funds and make them available to consumers, homebuyers and businesses in Canada.
“It is important to underline that Canada’s banks and other financial institutions are sound, well capitalized and less leveraged than their international peers,” says Finance Minister Jim Flaherty.
He adds that the Canadian mortgage system is sound and households have smaller mortgages relative both to the value of their homes and to their disposable incomes than in the United States.
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“However, it is becoming increasingly clear that the continuing disruption of global credit markets, which has been severe and protracted, is making it difficult for our financial institutions to raise long-term funding,” Flaherty explains. “This is beginning to affect the availability of mortgage loans and other types of credit in Canada.”
The government says this plan will come at no fiscal cost to the taxpayer as these securities will earn a rate of return that is well above its borrowing costs. Also, as insured mortgage pools in Canada already carry government backing, there is no additional risk to the taxpayer.
The first purchase is planned for Oct. 16, with a purchase amount of up to $5 billion.
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