Ottawa hopes to eke out some additional revenue by bringing the Canada Mortgage Bonds program in-house
Bay Street bond dealers and investors are raising concerns about a proposed change to Canada’s housing finance system that would transform the $260-billion Canada Mortgage Bonds market and see the federal government financing a significant portion of the country’s mortgage lending out of its own borrowing.
Critics aren’t so sure about the government’s math. Ottawa doesn’t pay the higher interest rate on CMB; that ultimately gets passed to the end mortgage borrower. And replacing $40-billion worth of annual CMB issuance with additional Government of Canada bond sales could reverberate through the market, driving up broader borrowing costs and eroding potential gains for the Treasury.
“Is that something that’s in the best interest of Canadians and of taxpayers? Is that what the government should be doing with their borrowings?” he asked. “The IIAC’s concern is that these decisions are being made absent enough thought of how the downstream consequences will affect secondary market liquidity, specifically of legacy securities,” Mr. Evans wrote in an April 26 letter that was made public last week.
The government has consolidated Crown corporation borrowing before, bringing the debts of CMHC, the Business Development Bank of Canada and Farm Credit Canada onto its own books in 2008. “It’s been a very successful program,” Romy Bowers, chief executive of CMHC, told The Globe and Mail’s editorial board last week, although she added that “it’s always good to do a review.”
“The mortgage market is in a fragile state right now,” Mr. Devlin said. “It might be a good move from a big picture perspective if they can get the structure right. But even if they had a decent structure, there’s execution risk of doing it at the wrong time.”
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