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Canada & USA are both contemplating changes to the way we finance housing

By Robert Hof

An interesting article from the Financial Post, October 1, 2013.

These are steps on the way to what market-watchers call the Holy Grail of housing finance – a residential mortgage-backed securities market that contains little or no taxpayer risk exposure.

Last Wednesday Scotiabank sold the first Canadian bonds backed by consumer lines of credit in 12 years. The highly rated issue sold at market, according to a Bloomberg report, at an impressive 78 basis points over similar-term Canadian government bonds.

Critics may worry that such events signal a continuing explosion in household debt and a return of the boom and bust “wild West,” U.S.-style marketplace.

But there is another way to see it. The bonds’ risks will be borne by the issuer and investors, not unwilling and unknowing taxpayers, who back most of the mortgage risk in Canadian and U.S. housing markets.

And change is afoot in the North American housing finance system. The U.S. and Canada are market-testing new ideas, while more of them bubble through the heads of policymakers and legislators.

In the U.S., the Obama administration had swept into office amid a housing-triggered financial market crisis. Other than defending the ubiquitous and dubious middle-class “right” to home ownership and a 30-year mortgage, the administration has until recently mostly been wishing the issue away.

More activity in Congress. The most aggressive house bill, the “PATH” act championed by Jeb Hensarling, would attack head-on Fannie Mae and Freddie Mac, the government-controlled, taxpayer-backed mortgage insurers and securitizers. The agencies would be gone in five years – too long for some. A good idea, but unlikely to survive aggressive lobbying by U.S. homebuilders and mortgage originators and brokers, or to make it through the Democrat-controlled Senate, or to survive administration foot-dragging.

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