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It is the law of unintended consequences.

The federal government wanted to cool the hot housing market. So it moved last fall to limit access to mortgage insurance.

That seemed like a sensible step. Insurance is required for all mortgages when the buyer puts down less than 20 per cent of the purchase price – so-called "high-ratio" mortgages. Federal authorities hoped to curb risky borrowing by prohibiting access to insurance for homes worth more than $1-million and for mortgages amortized over more than 25 years.

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It has only partially worked. Yes, the number of new high-ratio mortgages is down sharply.

Related: Uninsured mortgages pose increasing risk, Bank of Canada says

The problem is that many Canadians are now bypassing mortgage insurance altogether, creating new risks for borrowers and lenders. Buyers are choosing to make larger down payments on more expensive homes and stretching out amortization periods, exacerbating the country's debt problem. Meanwhile, lenders are more exposed because a growing share of their mortgage portfolios is not insured against defaults.

An increasing share of new mortgage lending is for these low-ratio mortgages, partly because so many homes in Toronto and Vancouver are selling for more than $1-million and don't qualify for insurance, according to the Bank of Canada's latest Financial System Review, released last week.

"The changes to mortgage insurance rules in autumn 2016 and an increase in mortgage insurance premiums may have encouraged some borrowers to increase their down payment to access a low-ratio mortgage," the bank acknowledged.

The result is that the Toronto and Vancouver housing markets have largely stayed hot despite the new mortgage rules.

Almost half of Canada's $1.5-trillion mortgage market – 46 per cent – is now comprised of uninsured loans, according to the Bank of Canada. More than 80 per cent of new mortgages issued by the Big Six Banks in the Toronto and Vancouver areas are low-ratio loans, which don't require insurance.

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It's not clear where Canadians are getting the money to put up the larger down payments. It's one thing if the money is coming from the "Bank of Mom and Dad" – as Bank of Canada senior deputy governor Carolyn Wilkins told reporters. But if buyers are dipping into lines of credit or taking out secondary loans from unregulated financial institutions, they may be putting themselves, and the financial system, at risk.

Many analysts have watched in alarm as the ratio of debt to disposable income has continued its steady rise in Canada in recent years. The ratio is now just shy of 170 per cent – well above what it was in the United States before the housing market there crashed a decade ago.

In some respects, home buyers are responding rationally. Sure, they are taking on more debt relative to what they earn, but debt-service costs have remained virtually unchanged for the past 25 years relative to incomes, according to C.D. Howe Institute economist and senior policy analyst Jeremy Kronick.

What people care about is their monthly mortgage payments. Canadians are taking on more debt to buy more expensive homes, but that has been offset by sharply lower interest rates. The result is that overall debt-service costs have barely budged.

Hidden in the debt-service ratio is the fact that the composition of mortgages has changed. The overall debt burden has shifted from interest costs to principal, Mr. Kronick points out in a recent C.D. Howe report. Canadians are taking on a lot more debt.

"Households are more leveraged and more vulnerable, with principal making up a larger share of monthly housing payments," the report concludes.

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The concern now is what happens if something comes along to unwind the hot market, such as higher interest rates or a recession.

Mr. Kronick worries that Canadians may be ill-prepared for a housing shock. They have kept up their spending in other areas – on cars, home furnishings, technology and the like – even as their housing debt has piled up. Essentially, he said, people are spending their accumulated housing wealth and depriving themselves of a "buffer" if house prices fall.

The bottom line is that government efforts to discourage risky borrowing are, at best, half-measures.

They may even be inciting some Canadians to do the wrong thing.

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