The important bits:
The proposed OSFI changes will significantly decrease access to affordable mortgage loans for first time Canadian home-buyers and apartment investors as theReading this release, it's an effective leak of plans by the Office of the Superintendent of Financial Institutions to end the CMHC buy-back of insured, "sub-prime" mortgages from the banks. Essentially, the Department of Finance is saying to institutions: "you've received all the support you're going to get from us."
CanadaMortgage and Housing "(CMHC)" securitization program is curtailed by changes to the capital governance rules that will restrict a financial institution's ability to generate Government guaranteed loans or require an injection of capital (equity).
CMHC's current securitization program supports affordable housing by enabling banks and financial institutions to issue more Government guaranteed loan products, thus making it possible for these institutions to provide credit to Canadians at lower interest rates as the securitization frees up space on their balance sheets. This allows these institutions to meet the demand for more mortgage loans than they otherwise could if they had to hold all the loans on their balance sheets, which are subject to several restrictive regulatory capital leverage ratios.
The OSFI's proposed policy will effectively tighten the capital governance rules and reduce an institutions capacity to generate these government backed mortgages.
"These are exactly the consequences that most of the academics, industry and political parties have openly said they do not want as they are all supportive of retaining the CMHC programs (supporting over 900,000 housing units worth
$148 billionin 2008) instead of curtailing them" said Paul.
"CIBC senior economist, Benjamin Tal describes CMHC as the "secret weapon" and he credits CMHC's ability to provide inexpensive credit as one of the reasons Canadian banks did not need a bailout during the recent recession. (Globe and Mail, Report on Business October 17)"
What's next is anyone's guess. The author of the letter featured in the release believes this is bad for FTBers and the market in general. I'm inclined to believe him. If you're a FTBer looking to access more money than you ever should be able to using terms that are a fiscal time bomb for yourself, your family and Canada's taxpayers, you will find this to be terrible news. If you're a homeowner looking to sell your property, it appears the money for the greater fool may just dry up after all.
I dare say this may be the most fiscally conservative move the government has made since 2006.