“A deep liquid market of this type has not existed in Canada. One had existed in the United States, but collapsed during the crisis and has not recovered,” Schembri wrote in a recent article. “The expectation is that, as the government reduces the supply of guaranteed securitization instruments, a private market will develop, but this is an open question. Other measures may be necessary to promote this development.”
The article, entitled “Housing Finance in Canada: Looking Back to Move Forward,” which was obtained by MortgageBrokerNews.ca by request, addresses some of the exposures currently facing the housing market in Canada, as well as potential security measures that can be implemented to mitigate and share risk.
“Plans are currently under way … to enhance the system by considering reforms that will rebalance the government’s exposure to the housing sector, increase market discipline in the demand and supply of mortgage insurance, and maintain competition in the mortgage market,” Schembri wrote.
The purpose of these plans is to strike a better balance of risk among both the private and public sectors.
Along with the proposed risk sharing, Schembri mentions the need for smaller lending institutions to have access to appropriate funding so that they can properly compete with the larger banks.
“In the years ahead, the government and other federal agencies, including CMHC, will be working on these questions to adjust the housing finance framework in Canada in a manner that enhances it further and puts it on a sustainable track with a better balance of risk sharing within the system,” Schembri wrote.
Brokers have already suggested it and now the deputy governor of the Bank of Canada, Lawrence Schembri, has suggested the creation of a “private-label mortgage securitization market.”