The 2010 federal budget announced recently contains a few provisions that will affect the mortgage market.
Mortgage Pre-Payment Penalties – The federal government intends to introduce regulations with federally-regulated lenders to standardize the calculation and disclosure of mortgage pre-payment penalties to make it easier for consumers to make financial decisions. This measure is in response to the concerns of some consumers about interest rate differential (IRD) penalties when breaking a mortgage to take advantage of lower interest rates.
Credit Unions – Credit Unions will be allowed to incorporate and function at a national level instead of just at a provincial level. This should lead to greater competition in terms of product choice and rates, good news for mortgage consumers.
Covered Bonds – One of the lessons of the global financial crisis is that financial institutions need to have access to a variety of funding sources. 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 – The federal government will continue to make purchases of qualifying insured mortgages until the end of March 2010. This program has purchased over $60 billion in mortgages, a stabilizing force in the market during the economic downturn. The government indicated that participation in this program by lenders has been waning as the economy improves.