Transparency would limit risk in Canadian residential mortgage market

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As low mortgage rates and high personal debt converge in Canada, financial regulators are looking for ways to head off a housing bubble that could send the country into an American-style recession.

The Office of the Superintendent of Financial Institutions on March 19 unveiled new guidelines it hopes will bring some transparency to the mortgage market and help protect borrowers and lenders alike. Under the proposed guidelines, which are currently open for comment by banks, mortgage broker firms and other industry parties, financial institutions would be required to disclose their percentage of insured residential mortgage loans versus uninsured loans, as well as set limits on the amount of risk they are exposed to in the residential mortgage market, according to a Reuters analysis.

"Although financial institution mortgage portfolios in Canada continue to perform well, a number of vulnerabilities in the financial system exist, including high household indebtedness," said Mark Zelmer, assistant superintendent of the regulation sector. "OSFI is acting in an effort to prevent these vulnerabilities from evolving into problems for the financial system."

Imposing more regulation on the mortgage lending industry could slow the rate of borrowing in Canada – something a number of experts say would also help stave off a debt crisis. By requiring big banks and lenders to shorten amortization periods and increase minimum down payment amounts, borrowers who are not able to afford home loans might wait until they're ready before entering the market, lowering their risk of default.

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