If Alberta Separated from Canada, How would Mortgages be Affected?
September 1st marks the anniversary of Alberta officially becoming a Canadian Province in 1905. Things have evolved since then. How do these changes affect you today?
Who actually makes Canada’s mortgage rules?
If you are getting a mortgage in Canada, you are dealing with rules created by more than one level of government. The Federal government (and its regulars) creates rules that determine whether you qualify for a mortgage. Other rules involving the property itself and mortgage agents are primarily provincial.
Understanding that division becomes particularly interesting when considering what could happen if a province such as Alberta ever separated from Canada.
Why are mortgages regulated by governments?
Mortgages are regulated because they involve large amounts of consumer debt and represent a major part of Canada’s financial system. Governments establish rules intended to protect borrowers, lenders and the stability of the banking system.
Canada’s Constitution divides responsibility between governments. Banking is primarily federal, while property and civil rights are primarily provincial. That is why rules involving banks and mortgage qualification can be federal, while rules involving property law, foreclosure and mortgage brokers can be provincial.
Federal Mortgage Rules
The mortgage stress test is one of the best-known examples of federal involvement.
OSFI requires federally regulated lenders to apply a minimum qualifying rate to most newly underwritten uninsured mortgages.
Other federal mortgage rules and programs include:
- CMHC mortgage insurance
- Minimum down-payment requirements for insured mortgages
- The $1.5 million insured-mortgage price limit
- 30-year insured-mortgage eligibility
Provincial Mortgage Rules
Mortgage broker regulation is one example of provincial involvement. In Alberta, mortgage brokers are licensed and regulated by the Real Estate Council of Alberta (RECA). Whereas, In Ontario, mortgage agents are licensed and regulated by the Financial Services Regulatory Authority of Ontario (FSRA)
Other provincial responsibilities include:
- Land titles
- Property ownership rules
- Foreclosure procedures
- Mortgage-broker licensing and regulation
- Real-estate regulation
- Provincial property laws
How would this affect mortgage rules?
Suppose Alberta eventually became an independent country. Would Alberta homeowners still have to pass Canada’s mortgage stress test? Would they still qualify for CMHC mortgage insurance? Would Canada’s insured-mortgage down-payment requirements still apply?
it would eventually have to determine how mortgages within the new country would be regulated. it might need its own mortgage-insurance system or negotiate some form of continued relationship with existing Canadian institutions.
There would also be a major question surrounding Canadian banks operating in Alberta. The big 5 banks are currently regulated federally in Canada. An independent Alberta would have to determine how Canadian banks could operate within its borders and under what regulatory framework.
What could this mean for mortgage borrowers?
For Alberta homeowners, the important question isn’t simply whether Alberta separated. It would be what mortgage system replaced the existing federal framework. Different qualification rules could affect how much someone can borrow. Different mortgage-insurance rules could affect buyers with smaller down payments.
Changes to the way lenders fund mortgages could potentially affect mortgage rates. And different banking regulations could influence which lenders are willing or able to provide mortgages in Alberta.
