Economist Nicholas Gruen's
new paper on the mortgage market, discussed in Banking Day yesterday, argues for government-insured securitised mortgages - a version of Canada's existing system. Canada's government-owned Canada Mortgage and Housing Corporation offers lenders' mortgage insurance on a wide range of mortgages.
But some Canadians are arguing that their system exposes Canadian taxpayers to too much risk - and suggesting Canada should adopt a system more like Australia's.
In
a paper earlier this year, market-oriented Canadian think-tank the Fraser Institute said the Canadian government was heavily exposed in the mortgage market because 43 per cent of all residential mortgages are backed by the CMHC. The report recommended that Canada open its mortgage insurance market to full competition and privatise the CMHC. This would be similar to the successful Australian model of mortgage financing, it said.
Gruen argues in his paper that a Canadian loan for less than 65 per cent of a home's value can be insured by the CMHC for just 0.5% of the loan amount and then securitised just like a government bond. He argues that the resulting trade-off between price and security is better than the Australian system is delivering.