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Canada bank regulator eyes uninsured mortgages

The country's bank regulator is looking into whether uninsured mortgages of more than 25 years pose a risk to lenders and the broader house market given recent concerns about soaring consumer debt levels.

The Office of the Superintendent of Financial Institutions is now in the process of talking to lenders and assessing potential risks in deciding whether it should take action, the Globe and Mail reported on Monday.

Annik Faucher, spokeswoman at OSFI, said the regulator routinely reviews mortgage portfolios with institutions to assess its guidance and effectiveness with industry.

"We are looking at the issue and doing some preliminary consultation with financial institutions. We are working to determine the desirability of some changes given current conditions in housing markets and recent trends in household indebtedness," said Faucher in an e-mail statement.

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"A decision in that regard would be taken once we hear back from the industry. Any proposed changes to our mortgage guideline that may result from this work would be subject to a public consultation process."

Mortgage insurance is required in Canada when a borrower has a down payment of less than 20 per cent, which is meant to help protect lenders against mortgage default. It also enables consumers to purchase homes with a minimum down payment of 5 per cent with interest rates comparable to those with a 20 per cent down payment, according to the Canadian Mortgage and Housing Corporation.

The topic has come under scrutiny with Finance Minister Jim Flaherty recently scolding lenders in public for offering ultra-low mortgage rates at a time when he's trying to rein in consumer debt and calm the once-frothy house market.

Last summer, Flaherty tightened mortgage-lending rules -- the fourth in as many years -- amid fears of the country's red-hot real estate market. That latest move, which included reducing the maximum length of insured mortgages to 25 years from 30, was aimed at cooling the house market and forcing consumers to get a grip on their debt levels.