Banks to Assume Mortgage Risk
Published: October 8, 2016
Updated: July 24, 2018
Author: Luke Jones
CATEGORY: Industry News
Canada’s taxpayer-focused mortgage-insurance system is to undergo a major shakeup that could see banks taking a brunt from some losses from defaults in mortgage payments. The country’s finance department said the government is shifting the risk of the housing market away from customers and onto the financial system in the country.
The aim is to stop a housing market that is getting out of control with many of Canada’s cities witnessing skyrocketing housing prices.
Under the current system, lenders who give mortgages to customers put the risk onto mortgage-insurance providers. Customers are required by law to take out insurance on a mortgage if they make a down payment 20% of under of the total value of the home.
“A system that supports the appropriate assessment and pricing of risks by all parties could serve to further strengthen the housing finance system, enabling it to continue to meet the needs of Canadians and support a strong economy,” the finance department said in its paper.