Someone please tell me how this will not end in ENOURMOUS federal goverment debt and even bigger inflation (Gotta be good for Gold). We're following the US and UK off the cliff, and it's even worse, because we started it with their example in full view:

http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html

"In 2008, Canadian home prices started to dip as affordability became the worst on record in many cities. CMHC admits that it was ordered to approve as many high risk borrowers as possible to prop up the housing market and keep credit flowing. 42% of all high risk applications were approved, a 33% increase over 2007. (Please see matrix below for more information)

While many banks were flogging that it was a great time to buy a home, not one of them increased their mortgage holdings. Between the beginning of 2007 and 2009 Canadian Banks increased their total mortgage credit oustanding listed on their books by only 0.01% (see CMHC chart below). One has to question if real estate was such a great investment, why didn't they want to touch it?



The only growth has been in the securitization of Canadian mortgages. In Canada this scheme has worked very well despite the credit crisis since the government of Canada insures 100% of any losses (not just the 20% downpayment). This means that the securities are as secure as government bonds, yet pay a higher premium (currently 3.1%).

The banks get to keep the difference between the interest rate charged to consumers and the rate paid to investors. The result of a government backing is cheaper subsidized funds for them to issue mortgages with. It also removes all risk.

The largest market for MBS is 5-year fixed single residential homes. The average term has swelled over the past two years and the majority of issues are for ams over 30 years. Some pools of MBS were issued at 9% but pay investors only 4% - representing how risky and profitable these loans are. CMHC charges 0.2% for the insurance, leaving up to 4.8% profit for the bank.

Securitization has accounted for 90.5% of all growth in total Canadian mortgage credit outstanding since 2007. Its market has grown from 100 billion in 2006, to 130 billion in 2007, to 260 billion by Q1 of 2009 (UPDATE: $295 billion by mid-June 2009). CHMC plans to expand securitization of debt to 370 billion by the end of 2009 as per the conservative government request."