OTTAWA - Bank of Canada governor Mark Carney is concerned about the loosening standards in the Canadian mortgage system, particularly the growing popularity of mortgages amortized over a 40-year period.
Carney told a Commons committee Wednesday that the central bank is watching developments in the mortgage lending sector closely to ensure that the abuses seen in the U.S. subprime market do not occur in Canada.
"We have concerns with the increased prevalence of very long amortization and higher value mortgage products," he said.
"They add to momentum in the housing market and if everyone has a 40-year amortization mortgage, then you just have higher housing prices."
And Carney conceded that stand five-year mortgage rates for Canadian home buyers had not decreased in line with his bank's 150-basis point cut in the overnight interest rate to three per cent from 4.5 per cent in early December.
"The costs for the banks have increased and yet there still remains an operating band (for other loans), except for five-year mortgages," he said. "Its difficult to provide a full explanations" beyond the global problems in the security markets.
Still, the governor stressed that the Canadian housing market is not following the path of the U.S., which went through several years of skyrocketing growth before bursting last summer and collapsing.
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http://money.canoe.ca/News/Economy/2008/04/30/5433651-cp.html
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