Friday of last week (October 10th), the Government of Canada announced that it would be purchasing $25 billion worth of insured mortgage pools to help out Canadian banks during the current credit crunch.
The idea behind the $25 billion injection by the government is to enable banks and mortgage lenders to continue offering mortgages to consumers, which had started to become tougher for banks to do because of the rising funding costs. As a result of the government’s actions, many of First Foundation’s mortgage lenders were able to cut their prime lending rate by 0.25%, making the current prime rate 4.5%.
Jim Flaherty, the Minister of Finance, still wishes to underline that the Canadian mortgage market is by no means in trouble. He is quoted as saying “Our mortgage system is sound. Canadian households have smaller mortgages relative both to the value of their homes and to their disposable incomes in the US.” Therefore, it’s good to keep in mind that despite the fact there may be similarities in the Canadian and US mortgage markets, they are indeed quite different and Canada isn’t in trouble.