Last week’s CMHC mortgage buyback was undersubscribed again. It’s the 4th straight time that’s happened.

The government offered to buy $4 billion of mortgages but only attracted $1.57 billion.

This is good news actually.  It means lenders aren’t as reliant on the government’s money as they were a few months ago.  That in turn, implies that mortgage funding costs are declining, which in turn means that lenders can offer better mortgage rates.

The buybacks started on October 16, 2008–in the midst of the credit crisis.  They were designed to help lenders obtain funds for mortgages at more reasonable costs than could be found in the open market.  Since the first auction in October, fixed rates have dropped about 1.4%.  (Due as much to the drop in treasury yields as to the buyback program […and due to lenders/investors believing that mass numbers of Canadians aren’t about to start defaulting on mortgages].)

Another interesting point, however, is that deposits have soared.  They’re up 14% over last year according to TD economist Grant Bishop. When lenders are flush with cash rates often drop accordingly.

“We believe at this point in time there is a fair amount of liquidity in the system,” CMHC CEO, Karen Kinsley, told a Senate finance committee.  As a result, she said CMHC will probably “slow it down a bit” (the buyback program) to match the declining demand from lenders.

(More from FP, Reuters, and Bloomberg)

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Sidebar:  The Finance Department has authorized $125 billion in insured mortgage purchases since last fall.  So far, the government has bought $54.94 billion worth.  The next auction is scheduled for April 15.