Canada mortgage purchase plan may wind down: CMHC

By Louise Egan

OTTAWA (Reuters) - Canadian banks have less need of a government program to buy up to C$125 billion ($103 billion) in insured mortgages, based on the results of the latest auctions, a senior official at the government's housing agency said on Tuesday.

"In the last two auctions, the takeup has been less than what we have offered," Karen Kinsley, president and chief executive of Canada Mortgage and Housing Corp, told the Senate finance committee.

As Kinsley was speaking, CMHC was completing its 10th reverse auction under the plan, and for the third time in a row bank participation was much lower than in previous auctions.

Finance Minister Jim Flaherty first announced the temporary mortgage purchase plan in October 2008 to help cushion banks from the global financial crisis and to counter a scarcity of private-sector lending. The program -- which began with plans to buy C$25 billion in insured mortgage pools and was later expanded -- aims to provide stable funding to banks so that they can lend more freely.

Kinsley said talks with financial institutions indicated that credit flows have improved due to CMHC's purchases of insured mortgage pools, which now total about C$55 billion.

"We believe at this point in time there is a fair amount of liquidity in the system," she said.

"I don't think we would say that the program isn't going to be taken up as we go forward but I think that given the pace that we've been operating at, we're probably going to want to slow it down a bit given the needs that lenders have at the moment."

In the auction on Tuesday, CMHC offered to purchase up to C$4 billion in the mortgage assets, but weak demand resulted in it buying only C$1.6 billion. In the previous two auctions, demand by banks was for less than half the amount CMHC offered whereas in auctions on February 9 and earlier the demand was for the full, larger amounts offered.