To The Pointwith Boris Bozic
Commentary, Opinions, Thoughts and Discussion on Current Events, Politics and The Mortgage Industry

7 Comments Mortgage Rules: The Heat is Getting Turned Up

Article written by Boris Bozic on the 22 Mar 2012 in Mortgage

Media coverage of “consumer debt” and “inflated home values” in Canada has been relentless.   The national newspapers have used up plenty of ink to cover these stories.  There’s been no shortage of so called experts willing to quote on these issue.  Opinions range from mild concern to abject hypocrisy.   Given that the temperature gauge has risen significantly over these issues, I have to assume that the federal government will be forced to respond.  This is not a story with  24 hour life cycle, and the government will want political shelter if the so called experts are right.

 I have a great deal of empathy for the good folks at CMHC.  For some time now they’ve been in cross-hairs.  The press, economists and some within the financial sector have taken liberties as it relates to CMHC’s credibility.  Does anyone really believe that CMHC does not know what it is doing?  That they do not have the required expertise to manage their business?   That they would act recklessly or in some way irresponsibly?  The answer clearly is no.  Yet, there’s been coverage recently about CMHC’S solvency.  Their financial statements clearly show that they have enough capital on hand to withstand market variances.  They continually run stress tests to ensure their financial viability, which equates to being responsible to the tax payer.  Their most recent stress test indicated that insolvency was not an issue, with the following caveat.  Our economy would have to go into  multi-year recessionary period, and unemployment would have to reach 13%.  Who among the so called experts are willing to put their reputations on the line by guaranteeing that dooms day scenario?  I suspect not many.  As for 13% unemployment, could it happen?  Certainly, it reached 13.2% in December of 1982.  Anything can happen but the question is what’s the probability?   That’s what CMHC manages day in and day out, and from where I sit they’re pretty damn effective.

 As for the other favorite target, the Ministry of Finance, I find it fascinating that some within the financial sector are publicly  stating that the government must act now and tighten mortgage rules.  They suggest that we’ve reached a critical stage, consumer debt it too high, home values are inflated.  Really? If that’s the case why don’t they do the responsible thing and act independently.  They could change their credit policies tomorrow.  If they believe that the government should change the mortgage rules  to reflect a maximum 25 year amortization, a minimum down-payment of 10%, and that borrowers should be qualified at the 5 year posted rate, then they should be prepared to lead by example.  If they’re not prepared to lead, and do it on their own, we have to assume that present day circumstances poses no risk to their share holders.  For if it did, they would do the right thing.  Just like the folks at CMHC have been doing.

 Until next time.



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Bob Salisbury @Twitter ID Website Reply

I totally agree with your comments Boris……CMHC has been around since 1946 and does not get enough credit when it comes to a good Banking system in Canada……I dare say CMHC supports our banking system honestly and with foresight to protect the housing industry in Canada. I only wish the banks would quit whining and as you have said step up and take a stand on Consumer debt……I really think some of the banks just want someone to blame (the government or CMHC) in this case…..An excellent post Boris….cheers

Mark Kerzner @Twitter ID Website Reply

A fantastic blog as usual. I particularly find the second half of it to be very interesting and I recently commented when BMO reintroduced the 2.99% 5 year promo that they obviously had both their risk and treasury folks onside. They (as all financial institutions) have a responsibility to their shareholders and choose what rate, product and credit guidelines they offer.

Michael Lloyd @Twitter ID Website Reply

Great article Boris, I agree with you completely. Tightening the rules now is just going to scare more people and make the worst case scenario come true. Makes me wonder why the media is pushing this story so hard…who’s doing the real pushing in the background??

Mark – one of your recent blogs said it perfectly. We are picking on the older sibling of lending which is mortgages and forgetting about the mis-behaving smaller siblings which are external, unsecured credit. The government or press don’t want to attack it because they don’t know how. Big banks make a fortune off tethering clients to them with these high interest vessels. We as brokers focus on Mortgage lending and health of that with our clients. Where I see clients in trouble are the ones with 6 active trade lines of credit with high balances and high interest. We have to turn people away because their debt load is large outside of the mortgage lending. Who gave them this credit and made the call they needed that much credit outside their mortgage? Who are the biggest providers of external credit in Canada? That’s right!! the big banks. Reign that in and Canadians will be better off. Mortgages =Shelter. external credit services Wants and not Needs. Jail the real culprit.

Barb Morgan @Twitter ID Website Reply

Boris did Jim Flaherty read your blog today? Because the Post has an article this aft with him stating a similar opinion- that he finds it odd that the banks need HIM to tighten up THEIR policies! Another great blog- I always look forward to your perspective on these timely topics!

Jason Dornstauder @Twitter ID Website Reply

I agree! Good Message!

It really is a shame that CMHC is looked at so poorly these days – and its even worse because the public and the media don’t understand what CMHC does…perhaps even worse – the Politicians may not even fully understand!

Today the politicians and the public view CMHC as a scapegoat to lay blame…its been propagated very well by the media. What irks me the most is that there are industry participants that fuel that fire by “throwing CMHC under the bus” . Usually because they are mad because CMHC wouldn’t approve their mortgage file!

It’s strange…a few years ago when the market was teetering on collapse – CMHC came to the rescue and bought up business from the lenders in order to keep them above water and perhaps even “solvent” to some degree – at that time CMHC was looked upon as SAVIOURS of the mortgage market in Canada! They prevented a very large crisis. They were the ones that took it on the chin so that the lenders could open up their lending pools more. Because of that the Banks were able to have Record Profits. I heard recently that something like 80% of TD’s conventional Mortgage product was Bulk Insured (that figure may not be precise…but close). Mortgages that didn’t have to be insured – but were insured in order to allow them to lend more! Imagine how much the other banks sold off!!

Now that the lenders have pushed CMHC close to its limits – they are in a tiff because they now have to inherit risk again – a practice that was only temporarily removed from them during the economic down turn until recently.

Its embarrassing really – the Banks are acting like petulant children and can’t, or perhaps the better word is WON’T, take responsibility for their own actions.

It’s no secret that Consumer Debt is at an all time high – Credit Cards, Lines of Credit, Auto Loans, Consolidation Loans, Demand Loans, Student Loans, Over Drafts, etc…but those credit items are all “hush hush”. – instead the focus is on the one credit item that has less than a .45% delinquency rate! LESS THAN 1/2 OF 1%!!

In Canada – it’s less likely for someone to go in to Bankruptcy because they can’t afford their mortgage – it’s considerably more likely that people over extend on their other consumer debts – the Car Loans, the Boat Loans, the High Interest Credit Cards and Loans, the Interest Only Line’s of Credit…but no one seems to want to talk about that stuff. It’s like some dirty little secret that we are all ashamed about.

Perhaps ignorance is bliss – and maybe it’s best we not talk about the real issues that are causing Canadian’s financial stress. Let’s just keep the Banks and other Financial Institutions wealthy…we all know they will be there for us when we fall on hard times…oh, wait – No they won’t. Why not? Because you are too high risk!

Boris Bozic @Twitter ID Reply

I would like to thank all those who emailed or called me with a response to my most recent blog. Your feedback and comments are greatly appreciated. I believe our voice is being heard. Ministry Flaherty announced yesterday that there would be no further changes to mortgage rules by department of Finance. They will continue to monitor the situation, as well they should, but for now they are satisfied with the changes they’ve made to date. They’re encouraging stakeholders to take the initiative and institute changes on their own, if they feel it’s necessary. I can state categorically that CAAMP’s government relations effort is bearing fruit, and we will continue to provide the government with facts a data to ensure that not only is our voice heard, but to assist the government so that informed decisions are made.


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