22 March 2013

Government is preventing banks to use portfolio insurance – will it lead to higher mortgage rates for consumers?

According to the budget documents, released recently, Canada will limit the ability of commercial banks to use insured mortgages as capital in their balance-sheets.

This decision is aimed at reducing the risks for taxpayers in case of volatile real estate market. The changes limit the amount of portfolio insurances the banks can keep on balance sheets. Portfolio insurance is the official government protection on mortgages with more than 20% equity (downpayment). The government also wants insured loans to be securitized by Canada Mortgage & Housing Corporation (CMHC)…

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