Canada’s mortgage regulations

Regulation has become an important topic in Canada’s overall financial sector. To begin with, Canada’s banking regulations are largely seen as having saved the country from the worst of the global financial meltdown, housing bubble, and economic recession.

There was a time in the 1990’s when liberalizing Canada’s private banking sector was considered a very real possibility. The Liberal government of the time was seriously contemplating various measures, including the opening up of Canada’s banking sector to international banks.

Canada first

In Canadian politics, economic nationalism is often the safest course of action. The Liberals ran two federal election campaigns against free trade, although the policy still remains. However, with respect to banking, nationalism seems to have paid off, since the Liberals, and the Conservative government since then, have refrained from opening up the sector.

This prudent management of Canada’s banking sector is largely seen as saving us from economic ruin. This same type of prudence has been exhibited in the mortgages sector, where government provisions, as well as measures by the big banks, have led to a very cautions regulatory regime. Some say it’s been too cautious.

For example, the Canadian federal government has instituted measures that have reduced amortization periods for government-backed mortgages and have increased the minimum down payments needed for new home buyers. In addition, the country’s large banks have instituted new mortgage-lending guidelines that have limited the amounts borrowed through home equity lines of credit.

Are we too cautious?

However, one of the results of this cautious approach to the mortgages market has been that the market has responded by offering mortgages by private lenders, which are not covered by some of these more recent regulations. That might change some time soon.

The rise of private mortgage lenders, such as mortgage investment corporations, has led to much speculation about the expanding of mortgage regulations to this growing sector. Some have suggested the need for the limiting of mortgage investment funds to government-backed mortgages, while others have talked about placing the kind of investment restrictions common to mutual funds and other publicly-traded securities.

Would these be an example of Canadian economic prudence, or old-style regulation? We’ll be watching how it all plays out.

ASCEND MIC is a mortgage investment corporation that specializes in offering investors high returns at low risk in Canada’s mortgages market. Please contact us to learn more.