AN ANALYSIS OF THE EFFECTS OF THE REMOVAL OF THE YIELD CEILING ON FEDERALLY INSURED MORTGAGES IN CANADA

AFTER THE CEILING WAS REMOVED, THE RATIO OF CONVENTIONAL MORTGAGE RATE TO THE NATIONAL HOUSING ACT (NHA) RATE FELL FROM 112.8 PERCENT TO 103.0 PERCENT, INDICATING THAT THE CEILING PROVIDED A BENEFIT OF APPROXIMATELY 10 PERCENT OF THE CONVENTIONAL MORTGAGE RATE FOR NHA BORROWERS. THE CEILING SUBSTANTIALLY REDUCED THE AVAILABILITY OF THIS CREDIT SINCE THE PROPORTION OF FINANCIAL INSTITUTION MORTGAGE LENDING FOR NEW RESIDENTIAL CONSTRUCTION THAT WAS FEDERALLY INSURED ALMOST DOUBLED AFTER THE CEILING WAS REMOVED. THE REMOVAL OF THE RATE CEILING ON FEDERALLY INSURED MORTGAGE LOANS INCREASED THE COST OF THIS CREDIT BY ABOUT 10 PERCENT OF THE CONVENTIONAL RATE. THE REDUCTION IN AVAILABILITY IS FELT PRIMARILY BY LOW INCOME BORROWERS. GRAPHS. TABLE.