OTTAWA (Reuters) - Canada’s federal housing agency, CMHC, is raising, in some cases tripling, the fees it charges to guarantee mortgage-backed securities, part of a move to limit government exposure to the mortgage market and encourage the private sector.
“This fee increase will narrow the funding cost difference between government-sponsored and private-market funding sources, thus encouraging the development of private-market funding alternatives,” Charles Sauriol, spokesman for CMHC, the Canada Mortgage and Housing Corp, said in a statement on Friday.
“The guarantee fee increases will better manage the size of our securitization programs, in which demand has exceeded supply in recent years,” he added.
Letters went out to financial institutions on Dec. 1 saying the new fees will take effect next April.
For five-year mortgage-backed securities, which are bonds secured by a pool of mortgages, the rate is rising to 0.3 percent for an annual total of guarantees on C$6 billion ($5.2 billion) or less. For guarantees above C$6 billion the rate is rising to 0.6 percent from 0.2 percent.
The fees for five-year Canada Mortgage Bonds are doubling to 0.4 percent.
Finance Minister Joe Oliver said in September the government wanted to reduce the government’s involvement in the mortgage market. His predecessor, the late Jim Flaherty, had expressed concern about the rapid expansion of CMHC’s role in the mortgage insurance business and taxpayers’ exposure to that risk.
CMHC’s two competitors are Genworth MI Canada Inc and Canada Guaranty Mortgage Insurance Co.
Sauriol said the availability and cost of mortgage credit is not expected to change significantly as the result of the fee increase.
Reporting by Randall Palmer; Editing by Peter Galloway