The Federal Budget De-coded

There wasn’t a lot of homeowner-related tidbits in the recent Federal Budget , but it does sound like mortgage default insurance is under scrutiny, and financial experts across the country are still unsure of what the fall-out of such scrutiny might be.

Mortgage default insurance – which is offered by Canada Mortgage and Housing Corporation (CMHC) as well as private insurers Genworth Financial and Canada Guaranty – is designed to assist homebuyers with less than a 20% down payment get into the marketplace.

The thing is, since the financial crisis, financial institutions have been purchasing mortgage default insurance on behalf of clients who had more than a 20% down payment, because “the pool of insured mortgages were more easily used in bank funding vehicles”, according to the Federal Budget document. The Federal government hopes to gradually phase out this process with the measures laid out in the new Budget, primarily to minimize its risk (because CMHC is backed 100% by the Federal government).

“These measures will restore taxpayer-backed portfolio insurance to its original purpose of allowing access for funding mortgage assets,” according to the budget document.

The thing is, while this sounds like good news for homebuyers – after all, it’s us who pick up the tab of mortgage default insurance premiums – nobody quite knows how it’s going to shake out. In the Federal Budget document, the government says it will consult the financial industry before introducing any new rules – and ensure there will continue to be plenty of funding options available to lenders.

In the end, this move will reduce the risk to taxpayers, which may be worth a bit of belt tightening on the part of lenders.