It is exactly what the property industry over the border in the US is calling for but the Bush administration is refusing to use its $700 billion bailout fund to buy mortgages.
Canadian officials said they are able to do so because there is a key difference between the two systems and that is that Canadian mortgages are not in distress.
Other measures taken by Canada include making it cheaper to use government insurance to guarantee bank borrowing, loosening regulations for banks to allow them more sources of funding, and boosting the borrowing authority of the government's Business Development Bank by $1.8 billion.
The Bank of Canada also set up a term loan facility to lend C$8 billion to banks in four tranches, using their non-mortgage loans as collateral.
The measures are aimed not only at easing the credit crunch but at ensuring that domestic banks are able to compete on an equal basis with those in other countries and to keep lending.
'The government of Canada is prepared to take whatever steps are necessary to ensure that Canada's strong financial system is not put at a competitive disadvantage by developments in other countries,' said Finance Minister Jim Flaherty.
'The government will not allow Canada's financial system, which has been ranked as the soundest in the world, to be put at risk by global events,' he added.
Most Canadian mortgages are not in default nor are they worth more than the underlying properties, unlike many in the US. But there is still not a strong market for mortgages in the current crisis, so when the government buys them it moves funds to the banks, which they are able to use to lend again.
'This extension of the program to purchase insured mortgages will further support the availability of credit, which will benefit Canadian households, businesses and the economy,' Flaherty added.
Toby Auterson, senior economist at the Economist Intelligence Unit, said the mortgage purchase plan was a good move to try to get lending moving again.
