A message from the Bank of Canada:
The Canadian system of housing finance proved to be resilient and efficient during the global financial crisis and its aftermath. The system”™s effectiveness is the result of a rigorous prudential regulatory and supervisory regime coupled with targeted government guarantees of mortgage insurance and securitization products. In the post-crisis period, household debt levels and house prices have risen, owing, in part, to accommodative monetary conditions necessary to support the economic recovery. These vulnerabilities were mitigated by tightening macroprudential policy, specifically mortgage insurance rules, and strengthening mortgage-underwriting standards. Looking ahead, the housing finance framework needs to be adjusted and strengthened by rebalancing the risk exposures away from the government toward the private sector participants in the housing finance market. Although some measures have already been taken for this purpose, more adjustments may be needed to create the right incentives and achieve a sustainable rebalancing in risk exposures. Measures should also be considered to promote a liquid private-label mortgage securitization market in Canada.
The Wall Street Journal translates the Bank of Canada message this way:
Canadian taxpayers have become too exposed to the dangers posed by the country”™s frothy housing market and authorities should get the private sector to take on more of the risk, a senior Canadian central banker said.
The Globe and Mail translates the Bank of Canada message this way:
The Canadian government is now too “exposed” to the country”™s hot housing market, warns a top central bank official who”™s calling for more private-sector involvement.
Garth Turner explains it this way:
Something is seriously out of whack.