Garry Marr and Paul Vieira, Finan­cial Post

The fed­eral gov­ern­ment is once again look­ing at tight­en­ing rules in the Cana­dian mort­gage mar­ket, accord­ing to a source close to the situation.

Finance offi­cials are set to meet in Ottawa on Mon­day with some of the country’s lead­ing econ­o­mists for pre-budget dis­cus­sions and the sub­ject of whether to tighten hous­ing reg­u­la­tions may come up.

Much of the dis­cus­sion about chang­ing the mort­gage rules seems to stem from com­ments made by the Bank of Canada gov­er­nor who last week warned that con­sumer bor­row­ing could not con­tinue at its present clip.

“Cana­dian house­hold bal­ance sheets are becom­ing increas­ingly stretched,” said Mark Car­ney, who issued a warn­ing to leg­is­la­tors about tak­ing steps to con­tain the growth of per­sonal debt. “His­tor­i­cally low pol­icy rates, even if appro­pri­ate to achieve the infla­tion tar­get, cre­ate their own risks.”

A spokesman for the Finance Min­is­ter said tough­en­ing exist­ing rules on mort­gage eli­gi­bil­ity is not on the agenda on Mon­day when Jim Fla­herty meets with econ­o­mists. The spokesman added the gov­ern­ment has already addressed the real estate sec­tor in ini­tia­tives intro­duced ear­lier this year.

But Craig Alexan­der, chief econ­o­mist with TD Bank Finan­cial Group, said while he hasn’t heard spe­cific talk about changes to mort­gage rules he could see it hap­pen­ing if the mar­ket heated up again.

“There is grow­ing con­cern about the growth of debt. It’s now 146% of per­sonal dis­pos­able income and the bulk of that is secured debt — mort­gage debt or home equity lines of credit,” said Mr. Alexan­der, adding the worry is that if long-term rates remain low or go even lower it could once again ignite the hous­ing market.

He said the eas­i­est way for the gov­ern­ment to tighten rules would be to tweak the income test require­ment. Instead of con­sumers qual­i­fy­ing for government-back mort­gages based on the rate on their con­tracts — the case for terms five years or longer — they would be tested on the posted rate, which is con­sid­er­ably higher and requires more income.

In April, the gov­ern­ment adjusted mort­gage rules to force con­sumers to qual­ify based on posted rates but left in a loop­hole that allowed the dis­counted rate for terms longer than five years. It also increased the min­i­mum down pay­ment for invest­ment prop­er­ties to 20% from 5%.

Those moves came after the gov­ern­ment imposed require­ments in 2007 that forced con­sumers to have a min­i­mum of 5% down on a home and low­ered amor­ti­za­tion peri­ods to a max­i­mum of 35 years from 40 years.

Mr. Alexan­der said if the gov­ern­ment went fur­ther and imposed rules that fur­ther lower amor­ti­za­tions, or worse, increased the min­i­mum down pay­ment, it could seri­ously impact the hous­ing market.

A real estate source indi­cated that as recently as eight weeks ago he had heard Ottawa was con­sid­er­ing tight­en­ing mort­gage rules but the recent slide in the mar­ket has it rethink­ing that. The lat­est sta­tis­tics show aver­age prices are now falling, while sales are down about 20% from a year ago.

Michael Pol­zler, exec­u­tive vice-president of Re/Max Ontario-Atlantic Canada, said hous­ing activ­ity is slow­ing, but all indi­ca­tions are the mar­ket will be okay and prices rel­a­tively sta­ble under the present rules.

“I would be sur­prised [if there were fur­ther changes] because I think you want to keep the hous­ing mar­ket rolling,” said Mr. Polzler.

The gov­ern­ment has to bal­ance the impact any changes in mort­gage rules might have on the over­all econ­omy. Accord­ing to July GDP data, the home resale mar­ket fell sig­nif­i­cantly for a third con­sec­u­tive month, and led to an 8% decrease in the out­put of real estate agents and bro­kers. The out­put of real estate sec­tor is now at about two-thirds of the level recorded at the begin­ning of 2010 when hous­ing was hot, Sta­tis­tics Canada data indicates.

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