Interesting thought, no? I’m working on another primer, which I hope to post later today. I came across this interesting chart in a recent CMHC publication. You’ll notice that the banks have not increased their holdings of residential mortgages one penny since 2007. Why is that?
The largest growth in mortgage credit came via Mortgage Backed Securities (the yellow component of the bar). This is where mortgages are bundled together and sold to investors. They trade as Canada Mortgage Bonds and are essentially as risk-free as Government of Canada bonds since the vast majority of the mortgages are insured by CMHC, a government agency.
Still….why aren’t the banks lending? Do they see the writing on the wall? Any insights?