The Retreat of Housing’s Greatest Ally

OttawaIf you have an interest in Canadian residential real estate, you’ll want to understand what happened on Friday.

In a series of interviews, Finance Minister Jim Flaherty stunned us all by alluding to far-reaching changes to the foundation of Canada’s housing market.

For 58 years, the government has offered mortgage default insurance to qualified Canadians. The idea has been to make homeownership more accessible, which in turn bolsters the broader economy.

Now, the government’s direct support of that insurance is in question and there are potential implications for home prices, mortgage availability and mortgage rates.

Jim-Flaherty-DOFThe comment that lit up headlines Friday was this one from Flaherty:

Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada. I think what’s key is that mortgage insurance is available at a reasonable cost in Canada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.” (Source: Financial Post)

It’s hard to know exactly what outcomes Flaherty has in mind. What is clear, however, is the Canadian government’s about-face on policies that have created one of the strongest housing markets in the world.

Those policies, in part, have fuelled home values and boosted exposure to default insurance. But they’ve also saved housing from imploding during the worst financial crisis in generations.

Going Private

mortgages-marketWith his comments Friday, Flaherty has put the government’s support of housing finance in doubt. That is despite describing housing risk as “moderate” and saying that it is “not a system that requires change right now.”

This presumably means that private enterprise will eventually assume much more of the housing and insurance risk borne by the government. One can envision a sale of Canada Mortgage and Housing Corporation (CMHC), a reduction in the federal guarantee of mortgage insurance, limits on conventional mortgage insurance, or some combination or equivalent.

In many ways, this is seemingly healthy. For example, one may wonder why a lender has to insure a mortgage against default when the borrower has 20% equity. Other things being equal, that borrower is significantly less likely to stiff their lender than someone with, say, only 5% down.

It therefore seems reasonable that a lender should assume the modest risk of a conventional mortgage, without relying on a government guarantee.

But the reality is that Ottawa’s enormous and diversified balance sheet is deemed far more capable of absorbing this risk than an individual lender’s. And thus far, Ottawa has decreed it a greater good to:

  • Promote home ownership (which our economy is largely built upon)
  • Subsidize mortgage risk-taking
  • Insulate financial institutions (which Canadian depositors and financial markets rely on) from the remote possibility of widespread defaults, and
  • Keep rates and insurance premiums low.

It also cannot be forgotten that CMHC is a profit-generating enterprise. It and its shareholders (we the taxpayers) earn a handsome return from insuring risk, to the tune of $14 billion over the last 10 years. That’s money we’d otherwise have to cough up through higher taxes or fewer government services.

Of course, some of that profit will be consumed if/when mortgage defaults materially exceed forecasts. Such losses, however, should be expected. Abnormally high claims impact all insurance companies and insurers plan for this eventuality. The concern should not be whether CMHC occasionally has losses, but rather how big those losses are.

Incidentally, the new oversight of CMHC by the Office of the Superintendent of Financial Institutions (OSFI) is a welcome change because it gives regulators a much deeper understanding of this exposure. Our only hope is that OSFI will not slash homeowners’ borrowing options in knee-jerk fashion if it deems risk to be inordinate. Hopefully it will instead consider remedies targeted at the actual risk. Those may include increasing insurance premiums or implementing new means-based lending guidelines (instead of blanket changes).

The Actual Risk

Measuring RiskWe must have read a dozen news stories about this topic over the weekend. Most of them included CMHC opponents railing against the downsides of mortgage insurance.

Despite that, not one single critic could quantify how big the risk actually is.

The go-to phrase of CMHC opponents is “taxpayer risk.” They paint a dire picture of Canada’s mortgage insurance system going broke, and leaving taxpayers on the hook for a bailout.

Without quantifying that exposure, however, the words “taxpayer risk” are primarily emotionally-charged rhetoric. No one is in a position to conclude that risk is excessive, or for that matter reasonable, without seeing and understanding all the data.

Unfortunately, public numbers on CMHC’s portfolio risk are few and far between.

(As a side comment, CMHC reporting leaves a lot to be desired. Yes, it’s getting better, but we still don’t have up-to-date statistics on things like debt ratios of high-ratio borrowers, average down payments of first-time buyers, average non-housing net worth of high-ratio borrowers, etc.)

What we do know (based on 2011 CMHC and CAAMP research) is that:

  • CMHC’s stress tests, which the Department of Finance should be auditing very carefully, imply a 1 in 200 probability of insolvency
  • Average home price is $369,677, but CMHC’s average insurance exposure is just $138,716 (as of its last quarterly report)
  • 3 in 4 insured borrowers have more than 20% equity
  • Average loan-to-value (LTV) of a CMHC borrower is 63%
  • 90% of CMHC-insured properties are valued at less than $400,000
  • Only 1% or fewer insured borrowers would have a Total Debt Service (TDS) ratio more than 45% (i.e., in the danger zone) if average mortgage rates rose to 5.00%. (Source: CAAMP research, May 2011)
  • 76% of CMHC borrowers have fixed rates
  • 73% of high-ratio CMHC borrowers have strong credit (i.e., scores >= 700)

In sum, the risk group—which includes those with weak repayment history, high debt ratios, and low equity—is small and clearly contained.

What’s more, as of Q3 2011, CMHC had $17.4 billion in capital set safely aside to cover claims. In a doomsday scenario, CMHC sources have assured us that it could handle obscene prime default rates on the order of 3.00% or more. That’s three times the all-time high of 1.02% in 1983, which occurred after a year when fixed mortgage rates averaged 17.89%. (Arrears today are a mere 0.38% per the latest CBA data.)

In Canada, the average high-ratio borrower pays down at least 2.00-2.50% of principal per year. People don’t like losing assets they invested tens of thousands of dollars in. Nor do they enjoy sleeping on the street. Nor can they avoid paying their lender by defaulting and handing in their keys.

This, and strong qualifications overall, make Canadians very prone to paying their mortgages—even when their home is worth less than what they owe.

The Repercussions of Privatization

financial-marketsThe financial markets take great comfort in our government’s sponsorship of housing. Politicians trying to exculpate themselves from “risk” should carefully consider the repercussions of knee-jerk policy changes.

A move to limit or privatize mortgage insurance could be disastrous if implemented too quickly. Investment in Canadian real estate, and in the industries that support it, would see a substantial retrenchment. Funding costs might also surge as investors scurry to re-price mortgage risk in an uncertain market.

For that reason, some of the short-sighted headlines we’ve seen this weekend (like “Get government out of the housing market”) cannot be taken at face value.

Those who advocate wholesale privatization of our housing system should be careful what they wish for. Removing the government’s guarantee would markedly diminish:

  • Securitization (which the market requires to fund up to 1/3 of all mortgages, and which some lenders depend on exclusively)
  • Insurance coverage and lending in rural or smaller markets
  • Insurance for multi-unit residential properties (a vital source of rental housing)
  • Jobs and economic growth (given that more than one in five GDP dollars – $330 billion – and 1.2 million construction jobs are tied to to housing activity)
  • Support for smaller lenders (Australia is case in point. Its minimal backing of housing finance has allowed the four dominant banks to control 87% of the mortgage market and, to a large degree, dictate rates.)

On that last point, some might question the need for greater mortgage competition in Canada, given all of our credit growth. We’d agree that it’s certainly less of an issue in the current environment (unless of course you ask a mortgagor—for whom paying $1,000-$2,000 more interest over 5 years has an impact).

But fast forward 3-4 years.

Consumers may come to rue the day that their government retreated from the insurance market, effectively signing the death warrants of many smaller lenders. Homeowners would undoubtedly face less mortgage discounting, fewer mortgage options, and higher mortgage-related fees.

For many years thereafter, major financial institutions with large balance sheets would likely be the only ones able to raise competitively-priced mortgage funds in a non-government backed system. Big banks would effectively get a free pass to run over smaller competitors.

It’s also foreseeable that a fully-private insurance market would limit certain borrowing options that people rely on today. Examples include self-employed programs, new-to-Canada programs and the like. Barring that, we’d potentially see insurance premiums increase by thousands of dollars in some cases.

This underlines a key point in this quickly-evolving debate. Structural changes of this magnitude have untold implications and represent a long-term paradigm shift. Officials need to think several moves ahead if they’re contemplating changes of this enormity.

That’s why it’s odd to hear Flaherty saying things like this about CMHC reforms:

“We’re doing these reforms now; we’ll see how it works.”

Well, hopefully it “works” okay.

At times, Flaherty makes housing policy sound almost like a trial and error endeavour. Unfortunately, it’s not. The government has one chance to get this right if its goal for home prices is truly a soft landing.

What’s Next

JumperIn the short term, Flaherty’s comments will, at a minimum, agitate the market. (The market hates uncertainty.)

In speaking with a bank executive from a major dealer last week, he told CMT, “MBS buyers want me to talk them off the ledge of the Canadian housing market,” meaning that many institutional investors believe a substantial housing retracement is looming. Talk of the government curtailing support for mortgage insurance will only elevate these concerns.

Fortunately, major changes do not seem imminent. The Finance Department is closely reviewing CMHC’s mortgage-backed securities business, but Flaherty says: “…Give us another year or so: I think we’ll have even a better handle on CMHC from a securitization point of view.”

The Boogeyman in “Risk”

risk-of-mortgage-insuranceAs ideal as it may sound, it’s impossible to have a riskless financial system. CMHC-critics campaign against “taxpayer risk” but removing the government from Canada’s insurance system doesn’t eliminate taxpayer risk.

If government sponsorship of housing was pulled and housing investment plummeted as a result, it would simply beget a different type of risk. That’s the type that results from the economic drain of a derailed real estate market and tumbling housing wealth. That is a risk that should get taxpayers and property owners really worried.

Despite all the comments above, we believe the government is right to call for more risk assumption by the private sector. Privatizing CMHC’s commercial functions may very well have merit. Reducing its 100% government guarantee absolutely has merit, it’s just a matter of how much.

But removing this guarantee altogether or constraining access to low-ratio insurance will have damaging consequences.

If the government did end up making system-wide changes to default insurance, one could only hope that it would painstakingly model every potential ripple effect. The net worth of 9.5 million homeowner households would be riding on it.

Rob McLister, CMT

  1. Hi Rob,
    Good observation. In the last month, there has been a lot of statements on housing market that both Mr Carney and Jim Flaherty have been making, and each progressive statement is become more desperate, and explicit.
    That said, this latest one just reflects the frustration that both seem to have with the situation, and kinda feels like they want to set a marker of “we warned you” and did “what we could”.
    Unfortunately, it is like closing the barn door after the horses have left.
    I also cant help but notice the irony in CMHC’s mandate of promoting home ownership and making housing affordable, which has partly been responsible for making homes now “unaffordable” to Canadians.
    With home ownership in Canada now over 70% of households, I think their role as an agency set up to address post-war shortages is coming to an end.

  2. Homeowners would undoubtedly face less mortgage discounting, fewer mortgage options, and higher mortgage-related fees.
    And home prices – and by extension mortgages – would be correspondingly lower.
    Lower mortgage rates and better mortgage terms only improve affordability in the short term. The market catches up and prices are driven higher until because people buy what they can afford. If they an afford to spend more because they have access to more credit, they pay more and prices go up.
    Yes mortgage rates will go up as the banks have to take on more of the risk of their own loans. Yes this will hurt in the short term, but overall it will decrease the risk in the housing market.

  3. Rob,
    Epic article. Great work.
    Lately I’ve been wondering if a soft landing is even possible anymore. I can’t see how all these demand killing lending changes will bring the market down gently. I just don’t see it. God forbid when rates jump 1-2%.
    Hope I’m wrong.

  4. A majority PC gov’t doesn’t debate, they implement their philosophy.
    It would be most beneficial and prudent to turn our minds to surviving in the future landscape. There isn’t a lifeboat for everyone so time is of the essence.
    1. With default rate low, and premium flow solid, CMHC will have little trouble selling pools of insurance for fair value.
    2. It’s inconceivable that insured mortgages would be barred from covered bonds while being permitted in CMB. Expect CMB changes.

  5. Another great article Rob, the first thought that came to my mind was of those dark days after the Lehman Brothers bankruptcy in the fall of 2008. By January of 2009 the private insurers had tightened their guidlines to the point of virtual closure and we were all very concerned.
    CMHC was there like a rock, policies basically unchanged, with the sole objective of continuing their program of insuring mortgages for Canadians, the availablity of the CMB kept monolines alive and backstopped the whole system. By June of 2009 our world was back to normal.
    How soon we forget.

  6. Flaherty seems to be saying “why give it away with tax dollars when you can already buy it cheaply from someone else”. That’s hardly a big change. What started out as solving a real problem has gone so far beyond that that it only make sense to cut back.
    Of course some people will be disappointed that they’re left out of already overpriced markets because they can’t get that little extra push and help drive prices even higher (just like bank and hedge fund managers a few years ago were disappointed that they couldn’t make one more big bet to get back to where they were before). But everyone else will take a few extra basis points of interest and carry on.
    I don’t take it seriously when people say Canada’s housing market is just like the US, but I seem to remember some people a while back saying “the government should always support increased homeownership as a universal good”.
    The people who get the best support from the government are gathered in one building in Ottawa. The rest of us can and should look elsewhere.

  7. Good Article Rob!
    I am worried that this move to the free market system especialy a CDN institution like CMHC is shortsighted to say the least. I envision where buying a home in a small market like Timmins Ont or in the outskirts of Newfoundland will be next to impossible to finance for it will be deemed “out of our lending area”! This will be devastating to small communities.

  8. This is what our gov is worried about:
    “The developer also offered a “Gradual Deposit Payment Plan” which requires buyers to pay $2,500 with the Agreement of Purchase and Sale, then another $2,500 within 10 days of the purchase and finally $1,000 every month until they reach 5 per cent of the purchase price or they move into their home.”
    Why not just put new homes on a futures market if buyers are speculating? Seriously.

  9. a well thought out and moderate commentary Rob. Still, it’s hard not to be very worried about our future as the final act of the meteoric rise of our real estate market plays out.

  10. The review of CMHC’s role and activities is well overdue, even if it hurts our markets. CMHC essentially went bankrupt in the 70’s becoming in a few short months, the largest “homeowner” of resale real estate in Canada and spending the next 2 years offering firesales of abandoned real estate across Canada ( yes in CANADA !). This was the result of government sponsored and insured financing that provided grants and escalating mortgage payments (lower payments than the interest in the first few years followed by higher payments over time). Yes – in Canada ! ( see AHOP – introduced 1974, abolished 1978) This action lead to a review of CMHC’s underwriting policies with increasing premiums, lowering loan to values to 90% ( yes later increased back to 95% again). In fairness, CMHC ( “CENTRAL”, not “Canada”at that time)was merely the instrument for (bad)govt legislation DESIGNED TO “ease the formidable difficulty facing young people” in accumulating a down payment. No downpayment, or grant / borrowed “forgivable loan” downs with graduated payment plans, lead INITIALLY to NEW HOMES (ONLY)selling for 30% to 40% higher than resale BECAUSE of the financing, and then to a drop in value in those homes to over 50%, 5 years later. With no equity, CANADIANS (yes Canadians) simply left the keys on the counter and abandoned their homes. Huge, 5 year old subdivisions were empty within 1 year, except for the several older home owners who had paid cash for their homes and couldn’t abandon their equities. So when I hear – Canada is not the States, as the underlining argument, perhaps we should go back in real estate and financing history more than the last 10 years. I would rather review CMHC’s activities NOW rather than after they go ?, ……..although as mentioned above, there is the barn door problem that perhaps already exists
    PS- the older couple lost twice in the exercise. They lost their hard earned savings when they were able to finally sell their $ 30,000 home for $ 14,000. and again as taxpayers who had to fund the “losses” of all the other mortgages for the major banks. All the loans were insured, so no bank losses. … huh ….. ONLY IN CANADA

  11. I think what Flaherty is most concerned about is not necessarily the mortgage default insurance market in the conventional sense but rather how financial institutions have been using CMHC to bulk-insure their portfolio. Even the major banks, who rely on the securitization market far less than monoline lenders, have used CMHC to insure low-ratio mortgages so that they become more palatable for the investors who are buying these MBS.
    This begs the question of whether financial institutions in Canada have gradually lowered their underwriting standards just because they can now insure borrowers who actually have a fair amount of equity in the property. I remember the subject being discussed last year when a few veteran brokers reported that banks were approving mortgage deals that even CMHC won’t touch. So either the banks have taken more crap on their balance sheet or they found some way of packaging this crap together and somehow insuring it internally. Making it easier to qualify for a loan coupled with very low interest rates means that housing prices in Canada appreciated at astronomical rates in many areas.
    Yes, we can attribute some of the pricing increases to foreign Asian buyers who are looking at foreign places to park their cash. However, I highly doubt that the condo craze in downtown Toronto or even Vancouver is fueled predominantly by rich foreign buyers. And if that’s really the case, as Realtors would like everyone to believe because let’s be real, higher home prices means fatter commissions, then how the hell can an average homebuyer earning 60k have the financial resources to compete in pricing wars with rich foreigners snapping up condos downtown and driving up the prices for everybody? No matter how you try to spin it, it’s a pricing bubble. To explain what happened to the Canadian housing market in recent years, one has to look at a very simple formula: more relaxed underwriting standards (due to the fact that government covers the default risk not just for high-ratio mortgages) + very cheap money for borrowers (a strategy used to lift the economy out of a recession, but the banks somehow turned it into a marketing game to get more business on their books) = people more likely to borrow (thinking that NOW is the best time to buy because interest rates will never be this low while believing that real estate valuations would continue to climb, thus fueling the demand side) while financial institutions are all too happy to lend.
    Sounds crazy? It’s the same game being played in the stock markets. Investors buy when valuations are high and sell when when valuations are low. They sell in the storm but buy at the peak.
    In my view, the whole underwriting system is screwed up. For instance, why are lenders using gross income to calculate debt ratio when debt is actually paid from net income? Why are we still allowing to borrowers to purchase a home in a highly inflated market with no money down? It’s no wonder CMHC saw its liabilities double over just a few short years. The government isn’t looking at where CMHC is today. Looking at the stats that Rob provided, surely everyone would think that CMHC is managing itself very well while earning billions from mortgage insurance premiums. No, what the government is looking at is what can happen in the future. The issue here isn’t so much the government worrying that every borrower would default at the same time and walk away from their home, but rather how is CMHC being used by financial institutions as a vehicle to prop up their profits in a “hot” housing market by increasingly using mortgage insurance beyond the typical use of what CMHC was created for in the first place.

  12. The issue is one of risk, to be sure. But I’m sure it’s also one of principle. At what point should the taxpayer stop subsidizing the homebuyer? I’m a single guy with a two bedroom condo. If I wanted to buy a larger space (even though I don’t need it), should the taxpayers of Canada subsidize my purchase with CMHC insurance, when it might be likely that a smaller space would suffice and incur no liability to the taxpayer?
    The risk equation can be quantified and qualified with serious analysis. The arguement over principle less so. That said, in an era where home ownership is at historical highs, it’s hard to argue that CMHC is absolutely necessary for the vast majority of first-time homebuyers. Limits could be imposed, according to property value, size of living space, etc. And such limits could help CMHC actually focus more strictly on its mandate.

  13. sadly, i’d hazard to guess that a fair number of mortgage professionals commenting on this blog and a vast majority of so called mortgage professionals flogging mortgages in Canada have not been around long enough to have even seen a downturn in real estate.
    i’ve been doing this since 2001 and i’d consider myself a veteran. Yet, i’ve only ever seen real estate appreciate in Toronto. i’d recommend for my fellow mortgage professionals to start thinking about trading in that leased bmw for a used kia. your income is about to drop like a rock

  14. “In a doomsday scenario, CMHC sources have assured us that it could handle obscene prime default rates on the order of 3.00% or more.”
    Did a quick search on MLS. of 4600 residential listings in greater Edmonton area, over 220 are foreclosures.
    that’s roughly 4.7% of all listings.
    yeah, go back inside people, there’s nothing to see here…..

  15. Another excellent article Rob! I so appreciate the time and effort you put into your research. Do you think the banks insure those conventional deals because they really believe they are risky?? or is it more the availability of cheap funds and to keep their funds revolving and not tie up their balance sheet?

  16. drmortgage
    Your comments are somewhat misleading. CMHC’s commercial mortgage insurance program has never been bankrupt, figuratively or otherwise.
    The losses you refer to ($555.6 million to be exact) resulted from shortfalls under two separate government-created programs – the Assisted Homeownership Program and the Assisted Rental Program.
    We’ve all remember the stories of people handing in their keys back in the 80’s but this was in no way epidemic. The defaults you refer to were disproportionately caused by programs like the AHP and concentrated in specific regions of the country.
    I’m sure you also remember the dire economic environment that existed at the time – when unemployment hit 11.5%?

  17. Or more broadly, the question could even be, should government have an agency with a core mandate to use implicit or explicit sovereign backing to facilitate the purchase of a house? What’s wrong with renting? And what’s wrong with the private delivery of mortgage insurance? Why does it necessarily have to be a government agency?

  18. There is no good time too make these changes but clearly even a great conservative government can see that the original goal of CMHC has been turned into another money maker for our Canadian banks. They get it all, insured debt, bulk insurance and re-leveraging their balance sheets every quarter.Rob,well researched article.

  19. Are you kidding? You’re trying to make a point that 220 foreclosures out of 208,000 owner occupied dwellings is somehow reason to panic?
    Do the math parter and don’t try to extrapolate Edmonton statistics to the rest of the country. It makes you look amateur.

  20. G’Day from Sydney!
    We’ve been eyeballing your market for a few years on this end of the Pacific. Australians can only dream of a housing system like Canada’s. Home loan rates here are bloody monopolistic. How does 6 per cent for three years fit you mate?
    It’s a fair go that privatization won’t fix sky-high home prices. Australia’s insurance market is private and we still have ourselves a nice little bubble. A flat here costs double the quid compared to 2003!

  21. What the gov’t wants is mortgage debt to be a lower % of GDP. Full stop.
    Based on recent Carney and Flaherty communications, a big bullseye has been affixed to the almost $300B of NHA MBS, CMB and covered bonds.
    Yes, that means the banks just got their oligopoly back.
    Anyone who wants to be still be in this game in 2 years ought to hitch their wagon onto the oligopoly.
    Telling Carney and Flaherty what they already know, and thoroughly contemplated isn’t a productive use of time.

  22. Government has always had a vested interest in building stronger communities in Canada (going back to land-grants to settlers) though home ownership.
    I’d wager that renting has an extremely low correlation with building multi-generational wealth and opportunity. Obviously renting has its place in the world, but with wage disparity growing, its important that lower incomes have a foothold and stake in the market.
    See Freddie Mac and Fannie May if you want to know the problems implicit in private insurance. They definitely have their place, but its much harder for a government to pull the levers of power through regulation than it is through policy.
    Clearly CMHC has grown too big for their britches and a bit of the current navel-gazing is a good thing. But what the market needs more than anything else is some long-term consistency…

  23. Hey there Tomas,
    I think we should have consulted you before spending 9 hours writing this story. LOL.
    On a serious note, we’re not as sure that politicians have fully grasped the ramifications of these issues. That’s probably why they’re taking a year or more to study CMHC’s securitization business.
    In the meantime, there will be plenty of time to analyze the direction of mortgage policies. Rest assured, we’ll try to keep all stories as productive and time-efficient as possible. ;)

  24. Thanks Barb (and everyone else) for the feedback on the story.
    Banks use portfolio insurance primarily to reduce their capital requirements and lower their funding costs. Lenders also insure some higher-LTV conventional mortgages for risk management, especially in places like Vancouver and Toronto.

  25. CMHC’s mandate is not to house first time buyers. It is to house all buyers.
    I as a taxpayer have no problem with CMHC insuring anyone who pays their mortgage on time. It means lower taxes for all of us.

  26. “Hardly a big change?” If this doesn’t meet your definition of big change then I’m dying to know what does.
    These changes could obliterate dozens of lenders and limit insurance choices. Rates, insurance premiums, and fees would skyrocket and we’d be left with whatever mortgages the banks want to sell us. A “few extra basis points” my foot.
    Oh yes, and the housing market would sink like a goddamn anchor. But please do enjoy your rental accommodations.

  27. Lior,
    Do you mean to imply that CMHC is not managing its risk well for the future? How do you know? Do you work for CMHC? Please share with us your data on CMHC’s probability of insolvency.

  28. >>> Obviously renting has its place in the world, but with wage disparity growing, its important that lower incomes have a foothold and stake in the market.
    Not really. Renting means you can always switch cities in a heartbeat to take advantage of that better job opportunity. Homeowners are stuck if they are underwater and don’t have cash to bring to the table. Hence, all else being equal, renters have the upper hand in a competitive job market.

  29. The Cons started out strongly pro-real estate. That they’ve switched sides, especially within the last few months, is most interesting. I tend to agree with those who think the Cons know the end is near for real estate regardless and are making all these changes now in an attempt to make themselves appear blameless and to leave others holding the bag.

  30. The world has changed a lot since CMHC was first established. It’s fair to question if the gov’t should still be significantly involved in housing. Especially when there are other big issues that need attention. For example, ensuring Canadians can compete in a global labor market. When I joined the place where I currently work, they hired lots of Canadian engineers out of school. Now they mostly hire Indian and Chinese engineers because they’re 75% cheaper than the Canadians. The same thing is happening in our marketing, accounting, and HR departments. If this keeps up, and if we don’t find a way to replace those jobs with well paying jobs that stay in Canada, this country is in trouble.

  31. Most of what your post noted has been boiler plate here for years:
    Carney worked international Goldman for years. Flaherty is a 63 yr old lawyer. These two kids are used to touching all the bases.
    The more they are deluged with industry lobbying, the more they will believe they’re right.
    But i give you credit for using “expulcate” in your post. I don’t think many of your peers properly appreciated your other reference to “death warrant” either. It’s absolutely appropriate.
    Turn your research to the future, talk about lender consolidation and strengthening affiliation with the big banks.
    Majority gov’ts do not negotiate.

  32. reply to Mortgage History- sorry for the late response. Your comments that the 70’s and 80’s was a different time is correct. But in reality the “programs” AHOP stood for assisted home ownership”) that failed were “financing” failures as much as inherently bad programs. In attempting to help Canadian buy with low(er) cost mortgage rates, and low down payments, the government simply created cheap money that artificially raised the price of new home, while not touching the value of re sales. When the financing package was removed ( when they came to sell as a resale), the new buyers with higher costs simply were not prepared to purchase at these over priced values. CMHC has lead the way over the last 10 years with 40 year ams, no downpayments, easy rental purchases, unqualified self employed programs only to back peddle out as they saw the results in the US. So government cheap money and CMHC insured products do offer a similar comparison of “programs” introduced to help Canadians, that have the chance to bite back as the real cost of borrowing returns

  33. Agreed. Of course the flip side of this is transient citizens are very tough to plan a city around.

  34. If this is the case, why have private mortgage insurers at all? Why not nationalize the entire sector?
    Obviously there is some delineation and there is a target market that the government intends to serve. This was quite clear, not too long ago, when CMHC had hard limits on the amount of insurance coverage it would provide.
    While there is no specific mandate to service first-time home buyers, I think most reasonable observers would agree that the vast majority of CMHC’s market is first-time homebuyers.

  35. This is simply racist claptrap. New immigrants may get paid less. But there’s no way they are getting paid 75% less, unless you are referring to the offshoring of the entire department to India or China…and that entails lots of other costs and operational impediments.
    And those immigrants, face barriers that most native born Canadians could not face without wilting.
    Thankfully, employers are starting to get it. Skin colour or accents do not matter. Skill, qualification and cost are the only things that should matter to an employer.

  36. I agree with you. But are there limits to this viewpoint? Is it necessary for government to provide subsidized mortgage insurance on all kinds of property at all price levels to promote social stability?
    Why can’t CMHC have a narrower mandate? First-time homebuyers, size of living space, property price, etc. All kinds of restrictions I can think of.

  37. the mortgage biz is not going to dry up. There is a ton of mortgages coming up for renewal in the next 2 yrs. I also see lots of subprime/private money available for those that wont be able to get traditional lending going forward, creating an opportunity for those who are true mortgage brokers adding value rather than just an order taker like a bank employee. Yes it will be more expensive and there will be an adjustment for some but again this is a small percentage of the market. If the market goes down 20% in certain areas as all markets are not equal this again is not going to devastate the market.
    Sincerely from a mortgage broker that doesnt lease cars cause its stupid, may as well rent from Budget rental. My late model vehicles are owned and paid for. Only say that for those that think every broker is spending fool and never plans for a rainy day.

  38. Who said anything about immigrants? Obviously I’m talking about offshoring when I said ‘global labor market’.

  39. Better to remain silent and believe others are fools than to open your mouth and become one yourself.

  40. After every paragraph that Rob writes I find myself inserting the phrase “That’s the point!” in frustration in his lack of understanding on this subject.

  41. Thanks Ron, Very true. As you suggested, private insurers have a greater propensity for pulling back during times of stress. If the government had less control of CMHC in a private market, it would need a much stronger crisis contingency plan.

  42. The extinction of non-deposit taking lenders is a real possibility with the new covered bond rules.
    These sorts of lenders represent upwards of $100 billion in mortgages.
    Won’t this impact the mortgage market?

  43. “Telling Carney and Flaherty what they already know, and thoroughly contemplated isn’t a productive use of time.”
    By your reasoning, all of the mainstream media stories about CMHC changes are an unproductive waste of time.
    Or are stories that agree with your own narrow viewpoint productive while all others are a waste of time?
    Your comments come across as incredibly arrogant.

  44. Tomas…i dont know what will come of all this and that is a very good question that hasnt been answered yet. No gov has the political will to do anything to radical that would potentially jeopardize them at election time. It will be a very interesting 12 mons going forward.

  45. Incorrect. Media stories are information. These blogs advocate a position. More pointedly, they’re a fruitless attempt to tell Carney & Flaherty they’re wrong.
    Good luck on that.
    The entire covered bond prohibition is in Bill C-38, and there is no obstacle for the bill to be passed into law.
    In light of that, would it be more useful to turn our minds to next steps?

  46. @Tomas
    Your statement is so prejudice and misguided that it barely deserves a response.
    In terms of mortgage information there is no equal to this site in Canada. Full stop, as you like to write.
    I hope you are joking when you say media stories don’t take a position. If not, then you’re beyond hope.

  47. “they’re a fruitless attempt to tell Carney & Flaherty they’re wrong”
    Since it’s so “fruitless” to question the government I guess you can throw every political commentary website by the wayside. Might as well shut down all the economic analysis websites while you’re at it.
    Good thinking Tomas. All we need are our trusty newspapers anyway. Those journalists are just so darned knowledgeable about the mortgage market.

  48. Thanks for the chance, but to be honest you banned me long ago and most of my posts have gone into your shredder. I’m shocked you reset the ban list and let a dissenting opinion through.

  49. This site shoots under par on censorship Ray. After 5.5 years and 14,590 comments, only four non-spammers have violated comment policy egregiously enough to win a free trip to the ban list. So you shouldn’t be hard to find.
    CMT has received 1,657 referrals from in the last 60 days, and you can’t find a dissenting comment? Look a little harder my friend.

  50. Bill C-38 will be law before summer.
    The non-bank lending space needs to urgently focus on securing a stable, reliable source of funding and to be far less fragmented than now. Scale, lots of it, will be necessary to survive.
    However, you are certainly free to enjoy more “…housing good, constrained lending bad” stories while the walls come down around you.

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