The ‘must-read article of the day’ award goes to this gem in the Financial Post:
Canada’s Mortgage Hazard by Neil Mohindra, director of the Centre for Financial Policy Studies at the Fraser Institute.
“If the Canadian government sees rising household debt levels as a real concern and bank underwriting standards as the solution, the logical course is to exit the business of mortgage insurance and stop guaranteeing residential mortgages with public money. Such a move would protect taxpayers from a business they do not need to be in.”
“As long as the government insists on backstopping the risk of high-ratio mortgages with taxpayers’ money, banks simply won’t have any skin in the game and will react half heartedly at most to calls for them to tighten lending standards to address concerns over rising household debt. Instead, the banks will simply sell as many high-ratio mortgages as they can, knowing that taxpayers will ultimately pay the price if rising household debt creates problems in the future”
The following posts contain additional information on CMHC insurance and the push by the banks to tighten mortgage requirements: