Regulations and government intervention in Canada’s mortgages market has been a hot topic for some time. At the heart of the debate is concern over how inflated Canada’s construction market is, and what steps the government needs to take, if any, to deflate it.
If we dig back even further, much of the discussion surrounding mortgages, housing and regulation goes back to the bursting of the global housing bubble, going back to about 2008, which was largely responsible for precipitating a global recession — the Great Recession, as they call it.
Striking a balance
So, on the one hand, there is a desire to protect Canada from housing-related risks, which many believe happened successfully in 2008 due to Canada’s well-regulated banking sector. On the other hand, some analysts worry that the government will over-react; that it will stifle investment opportunities in the mortgages market.
Specifically, there has been much discussion about reining in Canada’s private mortgages market. The government has already taken steps to make the hot mortgages market a bit cooler. In addition, Canada’s large banks have generally been cautious in their lending practices, in part as a reaction to the global housing crisis.
Ironically, these steps may have indirectly led to the rise of the private mortgages market in Canada, as various private mortgage funds, mortgage investment corporations, and other private securitizations of mortgages have been on display in recent years.
More government, or less?
While much of the analysis has focused on even more government action to curtail this activity, recent developments suggest otherwise. Specifically, the government may well back away from the mortgages market.
The Bank of Canada, which is the country’s central bank, has publicly indicated a desire to limit its exposure to government-backed mortgages. Right now, most big mortgage lenders, including the country’s big banks, issue mortgages that involve guarantees provided by the government. Many private mortgage lenders are not required to do the same.
If recent signals from the country’s central bank are an indication, the future trend won’t be towards more government intervention in the mortgages market, but less of it.
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