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Canada housing agency urges lenders to avoid risky borrowers

FILE PHOTO: The downtown skyline and CN Tower are seen past the eastern waterfront area envisioned by Alphabet Inc's Sidewalk Labs as a new technical hub in the Port Lands district of Toronto, Ontario, Canada March 29, 2019. REUTERS/Chris Helgren

TORONTO (Reuters) - The head of Canada’s mortgage agency urged lenders to avoid offering home loans to riskier borrowers insured by its private rivals warning that excessive household borrowing will make the “pain of the deferred COVID-19 economic adjustment worse.”

Canada Mortgage and Housing Corp (CMHC) has lost mortgage insurance market share to private insurers after the government-backed agency tightened underwriting standards from July 1 as it forecast home price declines of as much as 18% over the next 12 months.

“While we would prefer our competitors followed our lead for the good of our economy, they nevertheless remain free to offer insurance for those whom we would not,” CMHC Chief Executive Evan Siddall said in the letter to lenders dated Aug. 10 and made public on Wednesday.

Siddall said the CMHC is approaching the minimum level it needs to protect the mortgage market during crises, and urged banks to help protect against further erosion.

“Our ability to respond effectively in a crisis will be weakened if our market share deteriorates significantly further,” Siddall added.

Canadian home prices held up through the pandemic as listings dried up alongside buyers, and rose further in July as lower mortgage rates and the end of lockdowns caused demand to outpace an increase in homes put up for sale. But CMHC has forecast home-price declines of as much as 18% over the next year, and Siddall said in the letter he still expects prices to fall.

“We don’t think our national mortgage insurance regime should be used to help people buy homes with negative equity,”

Siddall said, adding that exposing borrowers, and first-time home buyers in particular, to excessive borrowing creates a very significant economic drag.

Reporting By Nichola Saminather; Editing by Marguerita Choy

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