Efforts to create a private mortgage bond market in Canada won’t work under current conditions because there’s weak demand to buy the securities even with state guarantees, said the head of the country’s national housing agency.
Canada Mortgage & Housing Corporation, which backs more than $422 billion of mortgage bonds that are packaged and sold to investors, is looking for ways to limit taxpayer exposure to the housing market. While the Ottawa-based agency has pulled back on mortgage insurance, the residential mortgage-backed security market is less likely to attract the private sector, said CMHC Chief Executive Officer Evan Siddall.
“We are skeptical about, based on Canadian experience and the experience of most other countries in the world, that private mortgage securitization will have much support to it,” he said in a May 22 interview at Bloomberg’s Toronto office. “It just hasn’t emerged and we don’t think the conditions exist to have it emerge.”
Galit Rodan/BloombergEvan Siddall, president and chief executive officer of Canada Mortgage and Housing Corp.
The Bank of Canada in February made mortgage-backed securities issued by private entities eligible collateral for central bank loans, saying the move might help create a market for financing mortgages free of government guarantees. The central bank has said Canada’s housing market is as much as 30 per cent overvalued and constitutes the greatest domestic risk to its financial system.
The government has been looking to shrink taxpayers’ exposure to the housing market after a real estate boom turned CMHC into Canada’s largest bond issuer and saw the amount of mortgages it insures swell to $567 billion in 2011. CMHC currently insures $543 billion in home loans.
To restrain growth of government-backed securitization, CMHC raised program fees and capped annual issuance, said David Barnabe, a spokesman for the department of finance.
“CMHC has an important role” in reducing exposure to the housing sector and to “encourage the development of non- government-guaranteed sources of mortgage funding,” he said in an e-mail. The government’s policy encourages lenders and investors to develop private funding vehicles like residential mortgage-backed securities, Barnabe said.