Canada's Flaherty worried about housing agency's insurance role

OTTAWA Wed May 22, 2013 9:35pm EDT

OTTAWA May 22 (Reuters) - The Canadian government is examining the role of the federal housing agency in providing insurance for mortgage portfolios held by banks, Finance Minister Jim Flaherty said on Wednesday.

Under Flaherty's watch, the Canada Mortgage and Housing Corporation (CMHC), a federal government agency, has come under closer regulatory scrutiny and its insurance business has been curtailed.

"I do have concerns about CMHC and have had them for some time," Flaherty told a committee of Canadian Senate committee.

In Canada, high-risk mortgages - where the borrower has paid less than a 20-percent down payment on a home - are required to have insurance which is provided by CMHC.

But Flaherty is turning his attention to CMHC's role in selling insurance to banks to cover portfolios of mortgages that do not otherwise require insurance because the home buyer has made a bigger down payment.

"We're going to continue monitoring CMHC very closely ... They still insure what are called portfolio residential mortgages ... We're looking into that as well," he said.

Flaherty, a Conservative, has tightened mortgage rules four times since 2008 to curb record-high consumer debt levels and to cool Canada's red-hot housing market - it has softened since mid-2012 and household debt-to-income ratio appears to have stabilized.

The banking regulator earlier this month said it was talking to the country's banks about issues related to their mortgage portfolios, particularly regarding uninsured mortgages of more than 25 years.

"We are working to determine the desirability of some changes given current conditions in housing markets and recent trends in household indebtedness," OSFI spokesman Brock Kruger said on May 13.

Flaherty said Canada would have had a housing bubble had he not intervened and he welcomed signs of softening in the worrisome condominium market, where too many units had been built and prices had soared.

But the finance minister said he's not letting down his guard yet because interest rates are likely to remain low for some time, tempting Canadians to take on more debt.

"The governor of the Bank (of Canada) has indicated that the policy rate of the bank is not likely to change for some time so this is a persisting problem," he said.

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