Government to extend mortgage purchase plan: report

Thu Sep 24, 2009 9:06am EDT
 
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OTTAWA (Reuters) - Canada is set to extend a program to help banks by buying insured mortgages, a sign it is not yet ready to unwind temporary crisis measures even though market conditions have improved, the Globe and Mail newspaper reported on Thursday.

A spokesman at the Department of Finance said he could not confirm the unsourced report.

The paper said Canadian banks have been pressing Finance Minister Jim Flaherty to extend the C$125 billion mortgage buy-back scheme, first announced at the height of the crisis and due to end next week.

The banking industry is worried liquidity pressures could once again emerge and have praised the program for seeing them through tough times while also yielding a profit for Ottawa.

The report follows an announcement by the Bank of Canada this week that it would end two of its three emergency programs to inject liquidity into money markets because they are no longer needed.

But policy makers have taken pains to deliver a message of caution to markets, saying the country's recession may be technically over and financial markets improving, but that full recovery is a long way off.

Flaherty 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.

Banks' takeup in the initial auctions was strong but started to dwindle in March.

($1 = C$1.07 Canadian)

(Reporting by Louise Egan; Editing by James Dalgleish)