OECD calls for mortgage reform

Canada should reduce the risk of a housing correction by making mortgage lenders shoulder more risk, the OECD says in a new forecast, reports The Canadian Press.

The organization says it expects Canada’s economy to pick up steam in the next few years, with growth rising to 2.75 per cent in 2015, from 2.5 per cent this year.

But its forecast sees risks to the economy in the form of the country’s housing market, which has been the subject of a heated debate over the possibility of a housing bubble.

“To reduce housing-related risks to financial stability and improve lender incentives, mortgage-insurance coverage should be limited to only part of lenders’ losses,” the OECD recommends in its report.

In other words, the OECD is suggesting Canada’s taxpayer-backed mortgage insurer, CMHC, shouldn’t insure an entire mortgage, but rather only part of it, leaving some of the risk with the lender. Presumably, this would make lenders more cautious about issuing mortgages.

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