Have your say: Lender risk sharing

Have your say: Lender risk sharing

Have your say: Lender risk sharing The banking industry has weighed in but now it’s the broker industry’s turn: Should lenders assume more risk in the insured mortgage market?

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The Canadian Bankers Association (CBA) released its official submission to the Department of Finance for consultation on lender risk sharing for government-backed mortgages.

Unsurprisingly, the association – which represents 61 banks operating in Canada – suggested the Department pursue other methods of safeguarding the housing industry from a potential downturn instead of forcing banks to assume more risk.

“This submission has questioned whether a deductible is the most effective way to rebalance risks within the housing finance system,” the CBA said in the report. “The industry believes that policy alternatives should be considered to achieve the same ends, but are simpler and less disruptive to the existing lending structure.”

Some alternatives suggested by the association include; allowing lenders to purchase reinsurance, reduce taxpayer support for mortgage financing, and hiking the country’s covered bond limit in a bid to encourage growth of uninsured mortgages.

The government is currently considering forcing lenders to assume more risk in the insured mortgage market. 

The government opened a public consultation period in October of last year, mere weeks after the unveiling of the most recent mortgage rule changes. Its deadline for consultation was February 28.

“The government guarantee of mortgage insurance is intended to protect against severe risks that could threaten financial stability,” the Finance Department said at the time.  “Lender risk sharing would aim to rebalance risk in the housing finance system by requiring lenders to bear a modest portion of loan losses on any insured mortgage that defaults, while maintaining sufficient government backing to support financial stability in a severe stress scenario and borrower access to mortgage financing.” 

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