The federal budget has just been announced. Below are some of the implications for the mortgage market:
Pre-payment Penalties: The government will “bring forward regulations” to standardize the calculation and disclosure of mortgage pre-payment penalties. (This applies to federally regulated lenders.)
This measure will likely be applauded by consumer groups. Interest rate differential (IRD) penalties have got tons of bad press in the last year.
Credit Unions: The government will introduce a “legislative framework to enable credit unions to incorporate and continue federally.”
This, too, could be a boon for mortgage shoppers. If credit unions are allowed to expand beyond their provincial borders, it will add further rate competition, more new products, and cross-border mortgage portability.
Covered Bonds: The government will “help federally regulated financial institutions diversify their funding sources by introducing legislation setting out a framework for covered bonds. Covered bonds are debt instruments that are secured by high quality assets, such as residential mortgages. The legislation will increase legal certainty for investors in these debt instruments, thereby making it easier for Canadian financial institutions to access this low-cost source of funding.”
Insured Mortgage Purchase Program (IMPP): “The Insured Mortgage Purchase Program will continue to make purchases of qualifying insured mortgages until the end of March 2010. This program has been successful in moderating the impact of the global financial crisis on credit conditions in Canada by providing funds to financial institutions that were then able to continue lending to businesses and consumers. To date, over $60 billion of term funding has been provided to banks and other lenders at a positive spread to the Government’s funding costs. Recently, lenders have not participated as aggressively in the program, as access to funding through capital markets has improved and investor demand for issuance from financing institutions, particularly Canadian banks, has resurfaced.” (Quoted from the budget release)