The federal government will take steps to maintain the availability of longer-term credit in Canada by purchasing up to $25 billion in insured mortgage pools through the Canada Mortgage and Housing Corp. (CMHC), Finance Minister Jim Flaherty announced Friday.

This action will help Canadian financial institutions raise longer-term funds and make them available to consumers, homebuyers and businesses in Canada, the government said.

“It is important to underline that Canada’s banks and other financial institutions are sound, well capitalized and less leveraged than their international peers,” Flaherty said in a release.

“Our mortgage system is sound. Canadian households have smaller mortgages relative both to the value of their homes and to their disposable incomes than in the U.S.,” he added.

The finance minister said that the continuing disruption of global credit markets is beginning to affect the availability of mortgage loans and other types of credit in Canada.

He said today’s action would “make loans and mortgages more available and more affordable for ordinary Canadians and businesses.”

The first operation is planned for October 16, with a purchase amount of up to $5 billion. The federal overnment will announce a schedule of future purchase dates to take place over the coming weeks.

CMHC will shortly announce further details of the competitive auction process that will be used to purchase the insured mortgage pools.

Following the government’s announcement, TD Canada Trust said it would lowe its prime lending rate by 15 basis points to 4.35%, effective, Oct. 14.

“We believe that this initiative will be put into effect in a way that will reduce our overall cost of funds and, as a result we are dropping our rate today,” said Tim Hockey, president and CEO, TD Canada Trust, in a release.

Bank of Nova Scotia announced a decrease of 0.25% in its Canadian dollar prime lending rate to 4.25%.

CIBC lowered its prime lending rate by 15 basis points to 4.35% from 4.50%.

Bank of Montreal lowered its Canadian dollar prime rate to 4.25% from 4.50%.

The changes are all effective Oct. 14,

IE