A big angle of the finance minister Bill Morneau’s housing announcement on Monday was the idea of having Canadian financial institutions share in risk of the insured mortgage market.
Canada is an anomaly from the perspective that mortgages with down payment of less than 20 per cent are government-backed among western nations.
Apparently Canadian banks are warming up to the idea, but the question is what impact this will have on the insured mortgage market?
One factor is the bank now takes on a share of that risk when they offer what is thought of as a riskier mortgage as the borrower has less equity in the home.
Secondly, is this going to require mortgage lenders and banks to raise and set aside more capital for potential loan losses?
Both the aforementioned have the potential for raising the cost of borrowing.