Fed. govt to buy up more mortgages

TORONTO - Finance Minister Jim Flaherty boosted Ottawa's efforts to ease the credit crunch Wednesday in a series of measures aimed at enticing Canadian banks to loosen their purse strings and extend more lending to businesses and consumers.
Ottawa will triple the amount of insured mortgages it will be able to buy from banks and make it cheaper for banks to use government insurance that guarantees borrowing, Flaherty announced from his office in Toronto.
Economists praised the measures, which they said will reduce the pressure on banks and help consumers gain greater access to credit.
The moves are expected to give banks access to a large pool of cash, or liquidity, which will help insulate them from the crisis that has hit global money markets.
Around the world, banks have been reluctant to lend to each other and to consumers and companies, making it more difficult to stimulate spending and get troubled economies going again.
"The best we can do is try to deal with the indirect effects on our financial system, and I think the Canadian government is doing exactly that," said Craig Alexander, vice-president and deputy chief economist at TD Bank.
"The government actions are aimed at helping Canadian financial institutions weather the storm."
Under the new measures, the federal government will be able to buy $75 billion in residential mortgages by the end of the fiscal year, up from $25 billion when Flaherty introduced the plan last month.
The plan is meant to take billions of dollars in mortgages off the books of Canada's big banks, which would then give them the financial capacity under current regulations to lend more money for consumer and student loans, lines of credit and corporate loans to help stimulate spending and economic growth in the flagging economy.
"Adding to it is a very positive thing because it isn't going to cost the Canadian taxpayer a single cent, the government of Canada runs a profit, and it helps Canadian banks get access to reasonable cost financing," said Alexander.
A credit crunch caused by the Wall Street financial meltdown and growing weakness in the global banking system has been blamed for a sudden freeze in lending, making it more difficult for people to borrow money to make purchases, or companies to get fresh loans to finance trade and purchase new equipment.
Gregory said the measures being implemented in Canada pale compared to the action that's been taken in the United States and Europe, where banks have been bailed out and taken over by governments - partly because Canada's banking system has stayed fairly robust.
"Global issues fall on our shore and they have, and we're paying the price for banks around the world. The thing is, though, the price we're going to pay is a lot less," he said.
Flaherty stressed that the mortgages are already insured through the Canada Mortgage and Housing Corp., a federal Crown corporation.
"It is an efficient, cost-effective and safe way to support lending in Canada at a time of extraordinary strain in global credit markets," he said ahead of a roundtable with economists.