OTTAWA (Reuters) - In a further effort to prevent the housing market from getting overheated, Canada’s bank regulator will oversee the commercial activities of the federal housing agency under legislation introduced by the government on Thursday.
In announcing the legislation, Finance Minister Jim Flaherty said he was giving the bank regulator, the Office of the Superintendent of Financial Institutions (OSFI), the job of making sure that the Canada Mortgage and Housing Corp (CMHC) doesn’t stoke an already hot market.
“I’ve been concerned about the CMHC for some time in the sense that it’s become an important financial institution in Canada, and it was not subject to the same supervision by the Office of the Superintendent of Financial Institutions,” Flaherty told a news conference.
“So I think this is an important step forward.”
Flaherty has tightened mortgage rules three times since 2008 to try to reduce the risk of a housing bubble, and declined to say if Thursday’s regulatory move marked the end of his interventions.
“We watch the market closely, and I particularly watch the condo market in Vancouver, Toronto and to some extent in Montreal as well,” he said.
“We continue to monitor the housing and mortgage market and we will take action as necessary.”
The bill also provides a legislative framework for covered bonds, which are mortgage-backed securities that are sold by banks and guaranteed by the CMHC. The legislation will establish a registry for institutions that issue covered bonds and for covered bond programs.
Once the bill passes Parliament, OSFI will monitor CMHC’s commercial activities and report to the finance minister, the CMHC board of directors and the human resources minister.
CMHC’s commercial activities include providing insurance for higher mortgages and guarantees for mortgage-backed securities issued by banks.
Some experts have expressed concerns about Canada’s housing market, with property prices seen as overvalued in some cities and in the condo market specifically. The role played by CMHC in fueling the boom has come under scrutiny.
“I believe that the federal government’s plan to bring CMHC under the direct supervision of the Office of the Superintendent of Financial Institutions is long overdue,” said Louis Gagnon, a professor at Queen’s University in Kingston, Ontario.
“OSFI is responsible for the oversight of insurance companies and it only makes sense to bring CMHC under its purview, since CMHC is the most systematically important insurance entity in the land and also the most vulnerable one,” he said.
The changes are included in a budget implementation bill that follows up on several measures contained in the Conservative government’s March 29 budget.
Separately, OSFI is now also tightening mortgage underwriting criteria for banks.
The bill also provides for the protection of covered bond contracts and collateral in the event an issuer goes bankrupt, and it prohibits the issue of covered bonds except within the government’s framework.
It says CMHC can only guarantee covered bonds with the approval of the finance minister.
The legislation also contains proposed amendments to the Telecommunications Act to lift foreign investment restrictions on telecom companies that hold less than a 10-percent market share.
Additional reporting by Randall Palmer; Editing by Peter Galloway