## Canada: Financial Sector Assessment Program-Technical Note-Housing Finance

_IMF Staff Country Reports, January 24, 2020_

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**Canonical URL:** [Canada: Financial Sector Assessment Program-Technical Note-Housing Finance](https://www.imf.org/en/publications/cr/issues/2020/01/23/canada-financial-sector-assessment-program-technical-note-housing-finance-48971)

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## Bibliographic details
- Published: January 24, 2020
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513527147.002

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### Overview
- This Technical Note on Financial Safety Net and Crisis Management for the Canada focuses on housing finance.
- Housing finance is broadly resilient, but pockets of vulnerabilities exist.
- Mortgage finance is dominated by domestic systemically important financial institutions (D-SIFIs) and supported by the government via mortgage insurance, securitization guarantees, and other policies.

### Market structure and lending patterns
- D-SIFIs have a market share of about 70 percent and focus on prime borrowers.
- Lending by D-SIFIs is backed by their strong balance sheets.
- The cost of prime mortgage financing is low and little differentiated.
- Credit risk is under‑priced in some segments.

### Potential amplification mechanisms and vulnerabilities
- Aspects of Canada’s mortgage finance may amplify procyclical effects of falling house prices during severe downturns.
- Core lenders focus on low‑risk mortgage lending; in response to deteriorating household debt‑servicing capacity they may:
  - constrain new lending, or
  - constrain renewals of maturing uninsured mortgages,
  - potentially adding pressures on the housing market.
- Alternatively, a sudden adoption of risk‑based pricing to accommodate financially weak borrowers might amplify household debt servicing fragility.

### Key statements and implications
- Mortgage finance concentration in D‑SIFIs combined with government support (mortgage insurance, securitization guarantees, and other policies) shapes risk distribution in the housing finance system.
- Low and undifferentiated cost of prime mortgage financing implies some credit risk is under‑priced, particularly in specific segments.
- Two adverse-developments scenarios described:
  - Constraining credit supply (new lending or renewals) by core lenders as households’ debt‑servicing capacity deteriorates, which could increase housing market stress.
  - Sudden shift to risk‑based pricing for weaker borrowers, which could increase household debt servicing fragility.

*International Monetary Fund. Canada: Financial Sector Assessment Program-Technical Note-Housing Finance, January 24, 2020.*

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_Source: https://www.imf.org/en/publications/cr/issues/2020/01/23/canada-financial-sector-assessment-program-technical-note-housing-finance-48971_