Bloomberg News

BofA’s King Says Canada May Boost Mortgage Insurance Cap

February 03, 2012

(Updates with King comment starting in third paragraph, mortgage lender comment in last two paragraphs.)

Feb. 3 (Bloomberg) -- Canada may need to raise the federal housing agency’s limit on mortgage insurance by 25 percent to C$750 billion ($755 billion) in the next budget to meet demand, according to Bank of America Corp.

Canada Mortgage & Housing Corp. said this week it’s rationing insurance given to lenders as demand rises toward its legislated C$600 billion ($604 billion) limit. An increase to keep up with housing-market growth may come in a budget that could be implemented by April or May, said Sheryl King, head of Canada economics at Bank of America in Toronto.

A smaller increase “would likely signal the government is trying to prevent the housing market from roaring at the pace we’ve seen since 2009 or at least trying to force the risk back onto the private sector,” King wrote in an e-mailed note today.

Mortgage rates and the five-year swaps that banks use to help finance the loans may rise if the government curbs the insurance, King said. The country’s biggest banks are offering five-year mortgages at 2.99 percent, supporting a housing market that underpinned economic growth since a 2009 recession.

At the same time, the Bank of Canada said in December that high consumer debt is the biggest domestic risk to the financial system. Canada’s banking regulator also said that lenders are becoming “increasingly liberal” with mortgages that don’t require borrowers to verify income, according to documents obtained by Bloomberg News.

CMHC spokesman Charles Sauriol didn’t immediately reply to a request for comment. Earlier this week, he said the company had insurance in force worth C$541 billion as of Sept. 30.

Mortgage insurer Genworth MI Canada Inc.’s Chief Executive Officer Brian Hurley said on a conference call today that his company won’t be affected by government limits on the amount of mortgage insurance.

“We have lots of room for new business,” Hurley said. “Capacity will not be an issue for us for this year, or going into 2013.”

--With assistance from Doug Alexander in Toronto. Editor: Paul Badertscher, Christopher Wellisz

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net


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