Canada tightens mortgage lending rules to cool housing market

Tue Aug 6, 2013 12:19pm EDT
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* Canada housing agency caps mortgage guarantees for lenders

* Move seen as another move to cool Canada's housing market

* Mortgage rates seen rising as banks reluctant to take on risk

By Andrea Hopkins

TORONTO, Aug 6 (Reuters) - Canada's federal housing agency took small step to tighten mortgage lending in 2013, limiting guarantees it offers banks and other lenders on mortgage-backed securities in another attempt to keep a lid on the country's robust housing market.

The move by the Canada Mortgage and Housing Corp may drive mortgage rates up by a small amount as banks and other big lenders are shut out of an inexpensive way to issue loans and have to take on more risk themselves at a time when some say Canada's housing market is overheated.

"CMHC is pushing back on the banks, (saying) 'You're going to take more risks on your balance sheet if you want to write these mortgages.' Well, the banks aren't going to write the mortgages," said Barry Schwartz, vice president and portfolio manager at Baskin Financial Services, which owns Canadian bank shares.

"No way are they going to take on risk when everyone is concerned about the housing market ... so this is going to cool off the housing market."

Canada's five biggest mortgage lenders - Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and Bank of Montreal - have used the CMHC's National Housing Act Mortgage Backed Securities (NHA MBS) program to convert loans into securities with CMHC, or government, backing.   Continued...