16 July 2010

It helped to accelerate the recovery from the Great Depression. The minimum down payment was cut from 40% to 20%. The term of the loan was increased from 5 to 10 years. Moreover, the borrower was allowed to renew the mortgage for a further 10 years.
• Joint Public-Private Lending was established under the Dominion Housing Act of 1935. Non-bank financial institutions received the right to make loans on new, residential dwellings (though in collaboration with the federal government). The maximum credit sum was 80% of the lending value.
• In 1946 CMHC (Canada Mortgage and Housing Corporation)  was created. It became an administrator of the joint loans.
• In early 1950s the renewable 10-year loan term was changed for 30-year loan term.
• Later it became necessary to bring banks into the mortgage market. CMHC suggested the right solution – insured financing. The federal government implemented mortgage default insurance.
• This new CMHC insurance successfully compensated the lender for default losses. It also made mortgages with less borrower equity not so risky any more. Moreover, pension funds, as well as individuals and others could invest in CMHC insured mortgages.
• Mortgages were not so popular until the 1970s. There were more possibilities to finance house-building at that time. The integration of the mortgage market with the larger capital market was achieved due to CMHC-insured financing. The interest-rate ceiling was also changed and the Bank Act allowed banks to make uninsured mortgages.
• In mid 1960s the banks’ market share was even less than 1%, but in the early 1980s it rose to 30%. Over the next 20 years it grew even more and in 2000 reached the level of 62%.

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