On the morning of August 6, 2013, the Globe and Mail published an article online about the Canadian Mortgage and Housing Corporation (CMHC) making a move to “take the steam out of the housing market.”
The big change
Under the National Housing Act (NHA), mortgage lenders such as banks and credit unions, are now being limited to a monthly cap of $350 million for mortgage-backed securities (MBS).
Okay, but what does this mean? And what are mortgage-backed securities?
First off, MBS is exactly what it sounds like: investments backed by mortgage collateral. Kerri-Lynn, RateHub’s resident mortgage commentator, explains it best:
“Banks and lenders pool mortgages into investment securities insured by the CMHC and then sell units to investors. Because the NHA MBS are insured by the CMHC, the CMHC protects investors who purchase the securities against default. Since the CMHC is a Crown Corporation, Canadian taxpayers are essentially on the hook too – if the CMHC ever ran out of funds, taxpayer dollars would be used to supplement.”
What does this change mean?
As Kerri-Lynn mentioned, Canadian taxpayer dollars would be used if the CMHC ever ran out of funds. Since the CMHC has implemented a strict $350 million/month limit, taxpayers are no longer threatened.
This new limit may also cause higher mortgage rates. This is how the change will cause a cooling down or stabilization of the Canadian housing market. How high the rates will go is unknown.
UPDATE: To watch a video about the changes on CTV News, click here.