* Canada housing agency caps mortgage guarantees for lenders
* Move seen as another move to cool Canada's housing market
* Mortgage rates seen rising as banks reluctant to take on
By Andrea Hopkins
TORONTO, Aug 6 Canada's federal housing agency
took small step to tighten mortgage lending in 2013, limiting
guarantees it offers banks and other lenders on mortgage-backed
securities in another attempt to keep a lid on the country's
robust housing market.
The move by the Canada Mortgage and Housing Corp may drive
mortgage rates up by a small amount as banks and other big
lenders are shut out of an inexpensive way to issue loans and
have to take on more risk themselves at a time when some say
Canada's housing market is overheated.
"CMHC is pushing back on the banks, (saying) 'You're going
to take more risks on your balance sheet if you want to write
these mortgages.' Well, the banks aren't going to write the
mortgages," said Barry Schwartz, vice president and portfolio
manager at Baskin Financial Services, which owns Canadian bank
"No way are they going to take on risk when everyone is
concerned about the housing market ... so this is going to cool
off the housing market."
Canada's five biggest mortgage lenders - Royal Bank of
Canada, Toronto-Dominion Bank, Canadian Imperial Bank of
Commerce, Bank of Nova Scotia and Bank of Montreal - have used
the CMHC's National Housing Act Mortgage Backed Securities (NHA
MBS) program to convert loans into securities with CMHC, or
The program allows investors to buy government-backed
mortgage paper and allows the lenders to issue mortgages at a
Canadian mortgage rates have bumped along near record lows
in recent years, fueling a housing boom that has driven
double-digit price increases in many markets and sparked fears
of a housing bubble.
The government has tightened mortgage lending rules four
times in five years, and the national market cooled in the
second half of 2012 and early part of 2013. A surge in spring
demand for homes has prompted a debate over whether the market
is heating up again as mortgage rates remain low.
CMHC said the mortgage guarantee program has proven more
popular in 2013 than in 2012, so that lenders are approaching
the C$85 billion limit set by the Finance Department more
quickly than anticipated. As a result, it said lenders will be
restricted to a maximum of C$350 million of new guarantees in
August and it will come up with a formal allocation process for
the final four months of the year.
"In short, home lenders will not have the same prospective
access to market NHA MBS as a source of funding," National Bank
Financial bank analyst Peter Routledge said in a research note.
Routledge said given the lower cost of funding through the
program, he would not be surprised to see mortgage rates at the
bigger banks climb an extra 15 to 45 basis points over time.
Smaller lenders would likely follow suit, driving up the cost of
home buying for consumers.