MNI EXCLUSIVE: CMHC: Canada Small Lenders, Families Pressured

--Canada Mortgage And Housing Corp. Reported to Minister After Election

By Greg Quinn

     OTTAWA (MNI) - Canada's federal housing agency warned its minister

following last year's election of evidence that smaller lenders are under

pressure and high debts make consumers vulnerable to economic adversity.

     "As we look ahead, we are concerned about emerging risks in the financial

system," Canada Mortgage and Housing Corp. CEO Evan Siddall wrote Minister Ahmed

Hussen in a letter dated Nov. 20. The Ottawa-based agency made the document and

the "Transition Book" for the minister available publicly Monday, spokeswoman

Angelina Ritacco said Tuesday.

     "We are aware that some smaller lenders find their business models under

pressure. We are preparing for less benign financial conditions than during the

Government's last mandate. Canadian households carry high levels of debt, making

them more exposed in the face of adverse economic conditions."

     Record consumer debt burdens remain a concern for policy makers. The Bank

of Canada has said the benefits to any interest-rate cut to boost the economy

amid global tensions must be weighed against the potentially larger cost later

of adding to imbalances in consumer finances.

     The government should keep in place a recent stress test imposed on

mortgage borrowers, Siddall wrote in the letter. The rule was put in place after

a housing boom raised questions about what would happen to indebted homebuyers

when interest rates rose from historical lows. "We continue to view any roll

back of the stress test from current levels to be irresponsible." The government

earlier this month adjusted the reference rate used in some stress tests to make

it more responsive to changes in market interest rates.  

     CMHC provides mortgage insurance, helps with securitization of mortgage

loans and advises on how to make housing more available for Canadians. The

letter said many Canadians are being left out of the market. Canada's housing

boom has pushed average prices for single-family dwellings in parts of Vancouver

and Toronto above a million dollars.

     "House prices in large markets leave homeownership out of reach for many

and drive up rents for them and others," Siddall wrote.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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