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2011•RePEc: Research Papers in EconomicsOpen access

What Governments Should Do in Mortgage Markets

Finn Poschmann

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Abstract

The federal government’s role in mortgage markets is pervasive and should be scaled back, while encouraging more competition in the mortgage insurance business, according to this study. The author notes that the mortgage insurance book of Canada Mortgage and Housing Corporation, CMHC, which is a Crown agency, now backstops mortgage lending equivalent to more than 30 percent of gross domestic product. While the net exposure is less than this, the arrangement subjects Canadian taxpayers to large, ill-defined risks. The author suggests several steps to manage these risks better.

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The federal government’s role in mortgage markets is pervasive and should be scaled back, while encouraging more competition in the mortgage insurance business, according to this study. The author notes that the mortgage insurance book of Canada Mortgage and Housing Corporation, CMHC, which is a Crown agency, now backstops mortgage lending equivalent to more than 30 percent of gross domestic product. While the net exposure is less than this, the arrangement subjects Canadian taxpayers to large, ill-defined risks. The author suggests several steps to manage these risks better.

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Available abstract

The federal government’s role in mortgage markets is pervasive and should be scaled back, while encouraging more competition in the mortgage insurance business, according to this study. The author notes that the mortgage insurance book of Canada Mortgage and Housing Corporation, CMHC, which is a Crown agency, now backstops mortgage lending equivalent to more than 30 percent of gross domestic product. While the net exposure is less than this, the arrangement subjects Canadian taxpayers to large, ill-defined risks. The author suggests several steps to manage these risks better.

Key concepts: Mortgage insurance, Collateralized mortgage obligation, Shared appreciation mortgage, Mortgage underwriting, Secondary mortgage market, Business, Agency (philosophy), Government (linguistics)

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