Thurs April 26, 2012 12:15 PM EDT
By Louise Egan
OTTAWA (Reuters) - In a further
effort to prevent the housing market from getting overheated, Canada's
bank regulator will oversee the commercial activities of the federal housing
agency under legislation introduced by the government on Thursday.
In announcing the legislation, Finance Minister Jim Flaherty said he was
giving the bank regulator, the Office of the Superintendent of Financial
Institutions (OSFI), the job of making sure that the Canada Mortgage and
Housing Corp (CMHC) doesn't stoke an already hot market.
"I've been concerned about the CMHC for some time in the sense
that it's become an important financial institution in Canada, and it
was not subject to the same supervision by the Office of the Superintendent
of Financial Institutions," Flaherty told a news conference.
"So I think this is an important step forward."
Flaherty has tightened mortgage rules three times since 2008 to try to
reduce the risk of a housing bubble, and declined to say if Thursday's
regulatory move marked the end of his interventions.
"We watch the market closely, and I particularly watch the condo
market in Vancouver, Toronto and to some extent in Montreal as well,"
he said.
"We continue to monitor the housing and mortgage market and we will
take action as necessary."
The bill also provides a legislative framework for covered bonds, which
are mortgage-backed securities that are sold by banks and guaranteed by the
CMHC. The legislation will establish a registry for institutions that issue
covered bonds and for covered bond programs.
Once the bill passes Parliament, OSFI will monitor CMHC's commercial
activities and report to the finance minister, the CMHC board of directors
and the human resources minister.
CMHC's commercial activities include providing insurance for higher
mortgages and guarantees for mortgage-backed securities issued by
banks.
Some experts have expressed concerns about Canada's housing market,
with property prices seen as overvalued in some cities and in the condo
market specifically. The role played by CMHC in fueling the boom has come
under scrutiny.
"I believe that the federal government's plan to bring CMHC
under the direct supervision of the Office of the Superintendent of
Financial Institutions is long overdue," said Louis Gagnon, a professor
at Queen's University in Kingston, Ontario.
"OSFI is responsible for the oversight of insurance companies and it
only makes sense to bring CMHC under its purview, since CMHC is the most
systematically important insurance entity in the land and also the most
vulnerable one," he said.
The changes are included in a budget implementation bill that follows up
on several measures contained in the Conservative government's March 29
budget.
Separately, OSFI is now also tightening mortgage underwriting criteria
for banks.
The bill also provides for the protection of covered bond contracts and
collateral in the event an issuer goes bankrupt, and it prohibits the issue
of covered bonds except within the government's framework.
It says CMHC can only guarantee covered bonds with the approval of the
finance minister.
The legislation also contains proposed amendments to the
Telecommunications Act to lift foreign investment restrictions on telecom
companies that hold less than a 10-percent market share.
(Additional reporting by Randall Palmer; Editing by Peter Galloway)
