CALGARY, Alberta (Reuters) - The Canadian government changed the rules for government-backed mortgages last week to avoid a U.S.-style housing market decline, even though the domestic market remains solid, Finance Minister Jim Flaherty said on Wednesday.
Officials were concerned about a recent trend towards long mortgage amortization periods and low down payments, which prompted the rule changes, Flaherty said in a Calgary speech.
“They are modest changes but we do want to encourage Canadians to build up equity in their homes,” he said, adding that the government wanted to avoid “anything” like the U.S. housing-sector crisis.
Flaherty stressed that the government was not worried about excesses building up in the domestic housing market.
“There is no bubble in the Canadian housing sector, that has not been our concern,” he told reporters after the speech.
“Our concern has been a tendency for longer amortization period of 40 years and purchasers putting very little money down.”
The changes, due to take effect in October, include ending government-backed mortgages with 40-year amortization periods, and a new requirement that buyers have a minimum down payment of 5 percent.
Various financial institutions have already said they will comply with the new thrust, either immediately or in October.
Genworth Financial Canada, a unit of U.S. life and mortgage insurer Genworth Financial Inc, and TD Canada Trust, the domestic banking unit of Toronto-Dominion Bank, both said on Wednesday that they will change their mortgage products to match Ottawa’s adjustments.
“Our products will comply with these rules beginning October 15, 2008, when the new limits take effect,” Genworth Financial Canada said.
TD echoed other Canadian banks in saying it will make the changes immediately. But the bank will still process applications for mortgage amortization periods beyond 35 years or low-downpayment mortgages if they have already been approved.
Reporting by Scott Haggett, writing by Lynne Olver; editing by Rob Wilson