New budget: Change for banks, no change for consumers and less change in pockets

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The new federal budget from Ottawa contains a mixed bag of mortgage news. Consumers will see little change in the way they secure and pay for mortgages, but some banks and lenders may have adjustments to make in the way they do business.

The government in its budget announced the Canadian Mortgage and Housing Corporation, the federally backed institution that provides 75 percent of mortgage insurance to lenders across the country, will soon fall under the authority of the Office of the Superintendent of Financial Institutions. Though details about the new oversight were scarce, experts suggest Ottawa would like to reign in some of the insurance practices CMHC currently engages in.

When homebuyers take out a mortgage through a large bank with less than 20 percent equity, lenders are required to secure mortgage-default insurance, often from CMHC. Many banks, however, have been seeking insurance for less risky homes in order to securitize those bulk mortgages and avoid paying costly insurance charges, according to an analysis in the Financial Post. This practice has driven CMHC close to its federally mandated cap of $600 billion, a cap Ottawa has said it will not raise.

The Office of the Superintendent of Financial Institutions has broad authority to implement policy changes in the agencies it oversees. By placing CMHC under its purview, Ottawa will be able to "ensure its commercial activities are managed in a manner that promotes the stability of the financial system," according to the text of the budget.

Consumers, meanwhile, will not see any changes to their requirements for purchasing home loans. Though many financial analysts in recent weeks have been calling on Ottawa to implement stricter borrowing requirements, none of their key recommendations made it into the 2012-13 budget.

Among the policy recommendations that ministers chose to pass over this year were an increase in minimum down payments from 5 to 7 percent, a maximum 25-year amortization period, and stricter means testing for applicants. While these policies had been championed by some of the nation's top financial experts, including Craig Alexander of Toronto Dominion Bank, Finance Minister Jim Flaherty said he was reluctant to take measures that might destabilize a fragile economy, Reuters reports.

One unlikely provision in the new budget that might affect both consumers and banks is the elimination of the Canadian penny. The coin costs 1.6 cents to manufacture, and halting production could save roughly $11 million per year, according to a National Post report.

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