When Finance Minister Jim Flaherty tightened mortgage rules once again last year, it was a real boon for investors. Banks were no longer approving as many borrowers, yet many of those borrowers remained in the market, only now, wondering where they were going to get that mortgage from. Private mortgages were there to fill the gap, and it was a move that benefited borrowers and investors alike. Now, the government is taking steps once again to limit its interaction in the mortgage market, opening the door even further for private mortgages to come in and fill a need.
It was this past week when CMHC came out saying that, for the month of August, they were limiting their mortgage guarantees to banks, credit unions, and other lending institutions to $350 million for the month of August. For each month after they will be releasing a schedule detailing just how much banks can expect for the months thereafter. The chances are, that those amounts will be close to the $350 million mark, or even less. Either way, banks are no longer going to have as much leeway in mortgage approvals, and they’re going to start being even more careful about any approval they put through.
Of course, this comes as CMHC continues to try to find solutions to their shrinking pile of mortgage insurance. Last year it was well known that they were very close to hitting the ceiling on that insurance amount, and that the government had no intention of raising that limit to allow even more borrowers to get in over their heads. Now though, the government has intervened by way of their Crown organization, and it’s going to have more borrowers on the streets wondering where they can get a mortgage.
The answer of course, is in private investors offering private mortgages. Each and every time the government makes it more difficult for borrowers to obtain mortgages, or for the banks to give mortgages, it’s good news for private mortgage investors. This is because there’s going to be a greater need in the marketplace for funds, and it’s private investors who hold those funds.
President Obama in the States said this week that he’s looking at limiting the amount of interaction their own government organization – Fannie and Freddie Mac – and it’s clear that the Canadian government is trying to do the same thing here. While CMHC (nor the American counterparts,) are private entities just yet, they’re well on their way to being so, if not something very close to. And that’s extremely good news for private mortgage investors.