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The Latest Constraint on Insured Mortgages

securitizationAs reported here, the Conservative budget proposes to limit private securitization of insured mortgages. It’s a move that one industry CEO we spoke with calls a potential “dagger through the heart of small lenders.”

That may be an overstatement, but if this measure passes as proposed it will become more expensive for non-banks to compete with the majors. The resulting impact on mortgage rates would be adverse, but modest. On the other hand, even a five basis points rate increase is a $413 interest boost on the typical 5-year mortgage.*

The questions are, how big is the actual risk being addressed by this rule, and does it warrant limiting lending competition, product innovation and consumer savings? That is the topic of this week’s Globe column.

* Assumes the average mortgage of $175,000, a typical five-year fixed term and a 25-year amortization.

Rob McLister, CMT