Is the Bank of Canada putting its hand in the cookie jar?

Bank of Canada hand in cookie jar

I was quite surprised by the recent announcement that the Bank of Canada plans on purchasing mortgage-backed securities for its balance sheet. Their plan is to purchase a bundle of CMHC-backed mortgages as investments. The Bank of Canada maintains that it will continue to be impartial when setting interest rates despite this transaction.

I find it troubling that the Bank of Canada will effectively become a real estate investor by buying mortgage-backed securities. Since they are purchasing CMHC-backed products, they are buying into high-ratio mortgages – those who have put less than 20% down payment into their mortgages.

So now the Bank of Canada is left with the question; do they increase mortgage rates so they can make more money off the mortgage holders? They’ve stated that they are only buying a small amount to offset liabilities but I feel that we should all be concerned.

What if we have a real estate market crash? The Bank of Canada will be materially affected by the ups and downs of the real estate market. Is this the direction that we want the Bank of Canada to take?

Of course, we don’t know how much of these mortgages they will purchase. However if the Bank of Canada now has its hands in the real estate cookie jar, shouldn’t we be concerned whether they take one cookie, five or twenty?

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