Lenders and borrowers 'highly prudent'

BY MARIO TONEGUZZI, CALGARY HERALD JANUARY 19, 2011

CALGARY - Residential mortgage credit has expanded very rapidly in Canada during the past decade, at an average of about 10 per cent per year, raising fears about the level of risk in the mortgage market and possible consequences for the broader economy, says a new report.

The report - Revisiting the Canadian Mortgage Market-The Risk is Minimal - says the United States experience has provided a "sobering illustration of the possible repercussions of mortgage risk run amok."

But the rapid growth in Canadian mortgage debt is related to a very strong economy.

And the report says the vast majority of borrowers holding highest risk mortgages have considerable room to absorb interest rate increases.

"The essential finding of this research report is that Canadians - lenders and borrowers - have been highly prudent in the mortgage market," says the report by Will Dunning, chief economist for the Canadian Association of Accredited Mortgage Professionals.

The major risk in the mortgage market is the loss of ability to pay, particularly due to job loss and a secondary risk is unaffordable increases in payments, says the report.

But the reports says increases in payments is a "negligible risk factor at present and in the near-to-medium term future."