Canada eyes stricter rules for mortgages: report

Thu Feb 11, 2010 9:35am EST
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OTTAWA (Reuters) - The Canadian government is looking at tightening up rules for granting mortgages to make sure consumers don't take on more debt than they can handle, the Globe and Mail newspaper reported on Thursday.

The report, which cited unnamed sources, said the principal proposal was to require banks to consider whether a person who takes out a variable-rate mortgage can continue to make payments if interest rates were to go up significantly.

The newspaper said there is a fear that many of the borrowers who are buying homes because of unusually low mortgage rates will struggle when rates rise, which could have a dampening effect on the broader economy.

As the housing market continues to heat up, some economists have warned of a possible housing bubble, fueled in part by the Bank of Canada's pledge to keep its benchmark interest rate at rock bottom until mid-year.

Finance Minister Jim Flaherty said on the weekend there was no evidence yet that home buyers were taking on unsustainable levels of debt, but that he stood ready to tighten insurance rules for riskier mortgages if necessary.

Former Bank of Canada Governor David Dodge suggested in a television interview on Wednesday that the federal housing agency, Canada Mortgage and Housing Corporation, should look carefully at the current terms for insuring mortgages.

But the report said that after studying the potential impact of requiring higher down payments and shorter amortizations, the finance minister believes that such moves would take too much heat out of the market and damage the economic recovery.

(Reporting by Randall Palmer; Editing by Jeffrey Hodgson)

<p>Canada's Minister of Finance Jim Flaherty attends a cabinet meeting in Chelsea, Quebec near Ottawa in this February 3, 2010 file photo. REUTERS/Blair Gable</p>