Financial Post Commentary on the Globe Story

"Proving once again there’s nothing so misguided as a Globe and Mail special investigation…"

That was the first indication Peter Shawn Taylor planned to pull no punches in his correction of the Globe & Mail.  His sentiments pertain to the Globe's condemnation of 0/40 mortgages and mortgage insurance competition. 

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  1. It’s very disappointing to see Canadian Mortgage Trends align itself so closely with the extreme right-wing “free market” (with government guarantees, of course!) fundamentalists at the Financial Post and Maclean’s magazine.
    These are the same people who got us into this mess in the first place.
    Interestingly enough, the piece doesn’t actually challenge any of the facts in the Globe and Mail piece. They just think deregulation is a good thing — of course, with government guarantees for both Crown and private insurers. It’s pure ideology.
    What’s worrying is that these folks show a total lack of introspection and a total inability to accept criticism or blame for anything that goes wrong in a society whose political and ideological landscape they have dominated since the 1980s.
    Worse, there is actually something morally repugnant about the way these mouthpieces of the wealthy and powerful now seek to blame renters and the poor for the current crisis. Talk about a lack of shame…
    Very disappointing, Rob!

  2. I would hope by now that everyone realizes that this financial crisis was brought on by over lending. You can’t solve a problem with it’s cause.

  3. Nathan – How do you like working for CMHC? Do you have an office with a view?
    If insurer competition is wrong and the root of our crisis then Canada should probably have only one bank too! I mean, then the government could control that bank and make sure no one gets a mortgage unless they have a 750 credit score and $200,000 cash in the bank. Hey that is a profoundly compelling and “introspective” idea. Thanks for that Nathan.
    No wait, it sounds like you work for the Globe. The Financial Post and Canada’s biggest magazine Macleans are fundamentalist mouthpieces of the wealthy? That is such an objective and intellectual statement. We all should aspire to think like this. Heck, the Globe should give you a raise!!
    Keep the insights coming!
    M.J.

  4. Would you guys agree that our latest housing boom was mostly history repeating itself? Didn’t home prices shoot up because Canada’s commodity economy was on fire? I do think 40 year mortgages bumped prices up a little but their effect was probably minimal compared to all the usual factors. IMO if oil and gold get back to $85 and $1000 I think we will see housing bottom out pretty quick.

  5. This is the most misguided blog I’ve come across so far. It’s one thing for a broker to use the internet to solicit business, it’s another thing to spread incorrect information and be a cheer leader for the over-heated housing market.
    What do mortgage brokers want? They want to sell you loans!

  6. I find people comical.
    It is not unlikely to find those who condemn rising prices of homes to revel in the amount of profit they made from one move to another.
    It is funny to see people condemn others for not looking at themselves for the cause of any downturn, yet fail to examine themselves also.
    People need to stop with the emotional arguments when they use misguided facts, then whine when we correct their misinformation.
    It’s really this simple. The people at the Globe and Mail wrote an article in complete ignorance. They were corrected. They should accept that they were wrong and move on with it.

  7. ….following all that new competition from the United States — the (mortgages in arrears) rate is 0.29%….
    The author is missing the impact of rising home prices. If home prices are rising it is easier to refinance debt, faster to sell homes and leads to decreased arrears rates
    To imply that competition lowered default rates misses that basic test in statistics. Causality
    Canada in recent years have offered products with higher risk to newer purchasers.
    In an environment of falling home prices with less access to refinancing and longer sell times brought on by a recession you can be reasonably be assured that default rates are going to rise and probably be higher than historical averages in spite of new competition

  8. Free market competition is great.
    Pretend competition that CMHC introduced will only end in failure.
    If there was no government guarantee that would mean that mortgage rates would be at least 10-20 bps higher due to default risk of the insurers. In this current market AIG would be priced out of the market entirely.
    To state that competition helped the housing market is idiotic because the government guarantee upsets the natural balance that would exist in a free market and leads to malinvestment.
    In reality all this new competition has created a higher level of risk for the whole housing industry and has damaged the credit rating of Canada itself.
    My general rule is that if a government entity wants to monkey around in the economy they should be extremely risk adverse in their actions. CMHC failed to do that.

  9. Hi Folks,
    All viewpoints are always welcome here. People are going to disagree on things from time to time and there is nothing wrong with that.
    I would just ask that you take care with accusations, however, unless they are fully supported with facts and specifics. Aspersions based on generalities add no value.
    Further to the topic at hand, let’s examine the current environment out there. Here are some of the facts as we know them:
    * Canada’s housing market is overbought, is declining, and will continue to decline until the fundamentals catch up again.
    * There are major macro-economic factors at play in housing’s decline.
    * Mortgage default rates will rise somewhat from their currently low 0.29%.
    * Compared to the conventional 20% down and a 25 year amortization, any terms more lenient that this must by definition elevate home prices over some kind of timeframe, at least initially.
    * $0-down mortgages and 40-year amortizations have definitely fueled home prices somewhat (Economists don’t know how much but we know it’s at least something)
    * Products like 0/40 mortgages are absolutely bad news in the hands of the wrong borrower.
    * Good mortgage planners are careful with the terms they recommend because it serve’s nobody’s long-term interests to see homeowners get in over their heads.
    There should hopefully be common agreement on all these things.
    Now here are the topics where the debate has seemed to flare up:
    * Do private competitors in the default insurance industry help Canadians overall?
    * Is there minimal risk to Canadian taxpayers by having private insurers in our market?
    * Will the economy, and not the government, real estate professionals, brokers, media, etc., be the significant overriding reason that housing prices drop?
    * Do low-down payment and long amortization mortgages serve an important purpose for limited types of prudent borrowers?
    * Have Canadian lenders been conscientious in their underwriting despite the mortgage “innovations” that have come to market in the last few years?
    Given what we know and see each day, it is difficult for us not to answer a resounding yes to all of the above. We will not always be right and are always be willing to change our views if new evidence to the contrary appears. But based on what we know right now, this is the current state of our market.
    Thanks everyone,
    Rob

  10. Do low-down payment and long amortization mortgages serve an important purpose for limited types of prudent borrowers?
    That’s such a small number it almost makes the ‘product’ useless. If people can’t save 5% or more of their downpayment, they probably can’t afford home ownership. It’s more than a mortgage, taxes, utilities, UPKEEP.
    Everyone wants to skip a step. Save and show some diligence and work up to homeownership instead of acting spoiled. Why do we need prices to go up all the time? Why should we encourage everyone into homeownership? Some people are just meant to rent and we should really encourage them to do so. In turn prices will stay down, we can all get out of the rat race and rents can be lower. It’s a win for everyone. Except of course the RE agents and mortgage brokers. Boohoo. We can all win with lower house prices though.

  11. “The arrival of insurers from the United States set off a welcome flurry of innovations. One example: AIG United Guaranty offered mortgage insurance for the self-employed with solid income but no single employer.”
    AIG went bankrupt and is now 80% owned by the US government. It was deeemed to big to fail so it got a massive bailout from the US taxpayer. Is that the kind of free market competion we’re looking for in Canada? I don’t think so.

  12. There are multiple flaws in Chris’s logic.
    “That’s such a small number it almost makes the ‘product’ useless.”
    That is totally inacurate. Well-qualified investors and self-employed borrowers number in the tens of thousands.
    “Why do we need prices to go up all the time?”
    Ask a senior citizen or anyone who wants to keep pace with inflation or build their net worth.
    “Why should we encourage everyone into homeownership?”
    Research the economic benefit of renting versus home buying and you will have your answer.
    “Some people are just meant to rent and we should really encourage them to do so.”
    Who is Chris to judge who gets their own home, or how they can handle their payments? People like this are one step away from regulating the cars people buy.
    By and large, the people who can’t afford a home won’t get approved. Canadian lenders are not in business to make bad loans and defaults are their worst nightmare.
    As for Monkey (a very apt name) check your facts. AIG did not go bankrupt in Canada. AIGUG is a completely separate standalone entity and is very well capitalized. It has its own capital and regulatory framework, an excellent credit rating, and zero liquidity problems. Go polute some other site with your fiction. This kind of nonsense just wastes everyone’s time.

  13. Now my other post is gone?????
    And you should delete that other post because that is NOT what I wrote and you are using my name by putting words in my mouth I never said! Delete that now and you might as well delete the other post too because now it makes no sense…since i never did say those things right?
    I used to like this site, but obviously it is not a public forum where all comments are welcome.
    You are making a big mistake by censoring this forum like this.
    You will see.

  14. “That’s such a small number it almost makes the ‘product’ useless.”
    That is totally inacurate. Well-qualified investors and self-employed borrowers number in the tens of thousands.
    – but these people can’t save enough for at least 5% down? Why are they in such a rush to get into homeownership when they can’t save enough for a downpayment? Sorry, I simply don’t see how qualified you can be if you can’t save 15k for a house.
    “Why do we need prices to go up all the time?”
    Ask a senior citizen or anyone who wants to keep pace with inflation or build their net worth.
    – keeping pace with inflation is one thing, but we aren’t doing that in the last bubble or any of the ones before that. It was driven by greed by RE agents, seller and even buyers trying to make quick money. Inflation isn’t even necessary. Inflation only benefits fake economies and kills savings as you admit yourself. Old people don’t need a house to increase in value. When they die, they don’t care what their house sells for.
    “Why should we encourage everyone into homeownership?”
    Research the economic benefit of renting versus home buying and you will have your answer.
    – When you can rent for half the price of buying, renting makes no sense. Right now at current house prices, renting is by far better value.
    “Some people are just meant to rent and we should really encourage them to do so.”
    Who is Chris to judge who gets their own home, or how they can handle their payments? People like this are one step away from regulating the cars people buy.
    By and large, the people who can’t afford a home won’t get approved. Canadian lenders are not in business to make bad loans and defaults are their worst nightmare.
    – People who are qualified to buy are those that have the money pure and simple. Do you have enough to buy a house outright? Does anyone? People used to and now they bought into a dream fed to them by the media and work for their house. Debt slavery. If you want to keep feeding that slop to young people, go for it. I know a lot of happy renters free as birds that don’t have to worry about repairs, maintenance, cutting grass or shoveling. They live well below their means and spend a lot less then 30% of their income on housing.
    I can’t help but think that all these people tooting low income buyers are being fed by RE in some shape or form.

  15. Chris,
    You’re right that for many people there is absolutely nothing wrong with renting. I’ve written here before that renting often makes more economic sense for folks in high-priced markets or those with limited income prospects.
    My wife and I rent. We do it because we think prices will fall here in Vancouver and because we’d rather invest our money in our business. For people in other financial/life positions, buying may make more sense. Different strokes….
    Rob

  16. Rob, I’m not the hugging type of guy! I’ve known a lot of tenants in the 8 years of owning rental property and plenty of them weren’t the homeowner type and the students I rent to are usually spoiled rotten. Not exactly the type of people you want with a large mortgage. We can get into helicopter parents who shadow over everything these kids do as well but that would be senseless, however these are todays buyers. The type that think they can renovate houses for big profit because they saw it on tv. I’ve done it all, but I’m different then what’s coming out today. I could tell you some stories.
    I’ve had a tough time convincing people to wait and watch and save. but slowly people are getting it. Right now is not the best time to be getting into a large amount of debt.
    Saving is a great challenge for newbie homeowners. If you can’t save a downpayment, you wont be able to pay your taxes, utilities, insurance and maintenance, let alone all the other surprises like furnace breakdowns and other hazards. And on top of all this, you still need to save for retirement!
    I’ll be happy when all the ‘investors’ vacate the market so we can see good deals once again. 2001 was great, now you can’t buy anything affordable, nor anything you can rent for profit even after investing work and money.
    It’s not the total fault of easy money, but it sure doesn’t help much. Now there are unsellable houses everywhere and people’s heads are in the clouds. It’s time to come back to earth. It’s a long fall unfortunately.

  17. M.J.,
    Too bad it’s come to attacking me personally. That only confirms what I’ve been saying about people in the real-estate and mortgage industries circling the wagons to avoid shouldering any responsibility for the deepening crisis. That’s unfortunate, but not surprising.
    Actually, I have nothing to do with the mortgage industry (aside from holding a mortgage myself). My only other connection to the housing “industry” is that (as a volunteer) I helped found organize a tenant association in three low-medium income high-rise buildings in downtown Toronto.
    If anyone has a conflict of interest on this site (since presumably that is what you are accusing me of) it’s the people who run it and many of the posters (such as yourself, I’m guessing), who are private, for-profit operators directly involved with real-estate financing, sales or even development. That is not exactly a reliable source of unbiased opinion on public-policy matters related to housing and finance, especially not in today’s tense climate.
    What has struck me about this site, though, is that while it is obviously directed at mortgage consumers and industry people, it isn’t only a place for Rob and Melanie to hawk their wares. It is unlike the dozens of mortgage and real-estate huckster websites I have come across. For an outsider such as myself, this site provides not only a good source of information and advice on my personal home-financing needs, but gives me a good overview of the mortgage and real-estate industry more generally.
    That’s why I have said I am very disappointed with the way Rob has aligned the site so openly behind one specific take on recent developments.
    The Globe and Mail is also a right-wing, corporate paper that isn’t exactly given to gratuitous attacks on business and finance (quite the contrary; it’s the main paper you see people reading in upper levels of business and government). Since you asked, I don’t work for the Globe (or in anything to do with media actually), but I will say that the paper deserves some credit for trying to step back from the current mess to try to figure out what happened. The paper’s Report on Business section also took a similar (and surprising) look into the asset-backed commercial paper debacle in Canada.
    All the champions of the “free market”, “competition” and “choice” on this site apparently have no problem getting fat government guarantees for their private profits, and now sumptuous bailouts from the public purse. From where I’m sitting, it just looks like another transfer of wealth to the wealthier segments of society, and especially to those who created many of these problems in the first place.
    For low-medium income people to have genuine “choice” in housing, some of these billions of dollars doled out to private financial interests would have had to go into non-profit (co-op, public housing, etc) rental-housing projects.
    Most people just want an affordable and decent place to live, and preferably with some control over upkeep, improvements and the like. The ideology of “private ownership” doesn’t really interest them, and we can see now how as a public-policy option it can get us into enormous trouble and waste.
    Best wishes for the holidays, everyone.

  18. I knew Nathan would respond. By the time he carefully crafted his reply, spell checked a dozen times and internally said ‘I got you with this M.J’, I already had my afternoon pint, finished up my Christmas shopping and made a quick trip to…
    [ We had to edit that last part C&R. – CMT ]

  19. I knew Nathan would respond. By the time he carefully crafted his reply, spell checked a dozen times and internally said ‘I got you with this M.J’, I already had my afternoon pint, finished up my Christmas shopping and made a quick trip to…
    [ We had to edit that last part C&R. – CMT ]

  20. Hi Nathan,
    Sometimes it’s hard to leave emotions out of an argument but we should try. Regarding your statement:
    “If anyone has a conflict of interest on this site…it’s the people who run it…who are private, for-profit operators directly involved with real-estate financing, sales or even development. That is not exactly a reliable source of unbiased opinion on public-policy matters related to housing and finance”
    To this I would say no one can be completely unbiased. Not you, not us, and definitely not the media. But we can get our facts across without condemning each other’s motives.
    For the record, we try hard to be objective. We provide a forum for people like you to call us unreliable and biased (LOL), we promote non-broker lenders who don’t pay us, we say things that Realtors sometime don’t like to hear, and we spend hours and hours compiling the information you read from 3rd-party sources.
    Our reasoning for railing the Globe piece is because it doesn’t correspond to the data we see, and it hurts our industry’s image needlessly. A non-professional may have a totally different perspective and there is nothing wrong with that if it cultivates an honest and civil debate.
    In sum, I would just ask folks to remember that not everyone who disagrees with them has bad intentions or biased logic. We’re ultimately all on the same side because a strong real estate market serves each of our interests.
    Cheers,
    Rob

  21. Rob,
    If you read my messages, you will see that I appreciate the efforts you make to provide information from third parties. I have also noticed that you often mention and even promote mortgage products that you don’t even offer through your brokerage. This is what makes this site stand head and shoulders above all the garbage out there. Clearly, this is at least in part a “labour of love” and I am grateful for it.
    I repeat: that is why I am so disappointed by your polemic (it’s a nice word) against the Globe and Mail’s piece. It might be better for a site of this calibre to stay outside public-policy debates, especially at such a tense and uncertain time. While I am no expert in PR (that’s not my field, either, M.J.!), if you are so concerned about your industry’s image, now is probably a good time to display a little bit of humility and openness to criticism.
    No spell check, and whipped off in a couple minutes…
    Best wishes to all.
    N.
    ps. what was in the deleted part of C&R’s message?!?

  22. Hi Nathan,
    Thanks for the kind sentiments and constructive criticism.
    I figured out a long time ago that it’s impossible to run a blog with thousands of readers and not disappoint someone. :-)
    We’ll keep doing what we do, as best as we can do it, and let PR rest on the quality of our content.
    Have a good holiday…
    Rob

  23. Good job on the blog and objectivity. Keep up the good work.
    Commenters, the article critiques are helpful, the conspiracy theories of coordinated bias and personal attacks, not so much.

  24. I would also like to add that chris has done a great job with this site. Its not easy running an info site about something that you do for a living, and this site is not just a big add for whatever chris is trying to sell, it actually has lots of good into/opinions. Keep up the good work!

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