“Enough is Enough”

PwCThat’s the title of a commentary by PricewaterhouseCoopers (PwC) about the federal government’s repeated mortgage rule changes.

In its recently released Consumer Lending Survey, PwC says:

  • “…We’ve seen significant restrictions placed on the use of government-backed insured mortgage lending.”
  • “…It’s not clear how changing so many lending variables in such a short span of time will affect Canada’s residential lending and, by extension, its housing market.”
  • If “more people than expected…find themselves unable to buy into the market or move up…housing supply could quickly outstrip demand and potentially put pressure on prices.” (This was the Finance Minister’s intention to a certain degree.)
  • “…Policymakers should consider avoiding further changes to mortgage lending until they can better assess the impact of the changes they’ve already made.” (That’s what the Department of Finance (DoF) is reportedly doing. It’s also what the DoF was reportedly doing last spring when it announced the last round of mortgage rules.)

Other factoids from the report:

  • Big-BanksResidential lending accounts for 35% of Canadian banks’ income.
  • To counter the decline in residential lending, PwC touches on various options including “Interest rate price wars.” It calls those “a potential option,” but one that trades “short-term market share gains for long-term margin compression.”
  • PwC recommends that lenders consider:
    • “Improving interest rate spreads through better insights on pricing…”
    • “Improving the customer experience…”
    • “Aggressively managing costs…(including outsourcing)”

Rob McLister, CMT

  1. Agreed…I would like to see my company have it’s annual CA firm costs reduced by 2/3. Hopefully Deloitte & Touche will start bringing in a team from India for the quarterly and annual engagements.

  2. They’re kind of late to the party on this. They’re complaining about 10 month old news here, and worse they’re just repeating the same obvious points that have been made a million times. The rules will impact borrowing and fewer buyers means pressure on prices. Shocking.
    Interestingly enough, in Victoria the lending rule change seems to have worked its way through the system. After July 2012 we had 8 months of 10-25% year over year sales declines, but in April sales have recovered to last year’s level.

  3. Yawn. CMHC is a subsidy to the beneficiary (mortgage borrower) and a hidden cost to the taxpayers. Why is government dialing back the benefits a “restriction”?
    I know the beneficiary pays a premium for the mortgage insurance. However, if not for the kindness of the government, such premiums would be higher or the insurance not even available — proven by the fact that no private companies offer mortgage insurance without govt’s help.

  4. The feds are playing with fire. This point needs to be repeated another million times. Too much medicine kills the patient.

  5. Except all the evidence points to the conclusion that the medicine seems to have effectively stabilized the patient.

  6. Genworth?
    Genworth MI Canada Inc. (TSX: MIC) through its subsidiary, Genworth Financial Mortgage Insurance Company Canada (Genworth Canada), is the largest private residential mortgage insurer in Canada. The Company provides mortgage default insurance to Canadian residential mortgage lenders, making homeownership more accessible to first-time homebuyers. Genworth Canada differentiates itself through superior customer service, a robust risk management framework and innovative processing technology. For almost two decades, Genworth Canada has supported the housing market by providing thought leadership and a focus on the safety and soundness of the mortgage finance system.
    As at December 31, 2012, Genworth Canada had $5.7 billion total assets and $3.0 billion shareholders’ equity.
    Genworth also will work with a mortgage holder if they get into trouble ie. loss of job to try to keep them in their homes rather than see it go up as a POS.

  7. Canada Guaranty? 100% Canadian owned.
    Since entering the market in 2010, Canada Guaranty has successfully established a number of strong relationships and continues to build new partnerships throughout the industry. As the only 100% Canadian-owned private mortgage insurer, supported by the financial strength of our ownership team, we are committed to delivering service excellence and improved solutions to support you and your borrowers.

  8. Last time I checked, CMHC was still 100% Canadian owned too and what gokou3 is saying is true. No such thing as “private insurer” when the Government/Taxpayer is the guarantor.
    Doug, you can just provide a link to the Canada Guaranty website next time. No point in cut & pasting their entire website content.

  9. CMHC actually protects the lenders not the borrowers. So, at taxpayers subsidy it is protecting the banks from the risks of borrowers defaults which is actually being created by themselves.
    The borrowers just get so called better interest rate if the mortgage is default insured.
    But I think the banks are now more than willing to lend at a lower rate. The only reason now they want CMHC is to sell bonds to the investors – guess who??

  10. More misinformation from the uninformed.
    CMHC is not a cost to taxpayers. It is a clear and irreplaceable benefit. CMHC has returned $17 billion in profit to taxpayers over the last decade and created hundreds of thousands of jobs. That’s on top of substantially lowering people’s mortgage interest costs through its securitization initiatives.

  11. Dave its actually good to have someone highlighting an often unheralded piece of this situation, which is the benefit that taxpayers gain from CMHC’s insurance business. The majority of the dialogue over the last couple of years has been how much CMHC will end up requiring from the taxpayer to bail it out when it all goes horribly wrong.
    My more general comment is that these are not new rules. They just brought back the old ones.

  12. Cut costs by out sourcing jobs to India? This lack of long-term vision, ignorance of history and no understanding of the dynamics of democracy of some in the business community always amazes me. Henry Ford, one of history’s greatest capitalist, knew he would make more money if his workers could afford cars. The same principle relates to the buying of houses.

  13. Exactly. That is a perfect summary of the way insurance works.
    If it turns a profit when claims are low and conditions are good, then of COURSE that will continue.
    That is the precise nature of random events. The past is a 100% predictor of the future.
    Anyone who has ever gone on a winning streak at a casino knows this.

  14. Henry Ford in January 1914 instituted a five dollars a day wage for auto workers. This move automatically doubled the average auto worker’s wage.
    With that model, Henry Ford essentially helped better the lot of all American workers and contributed to the emergence of the American middle class.
    The austerity models of today are trying their best to reverse this and kill the middle class.
    These models ignore the influence of improving processes for productivity as they just focus on one quarter to the next.
    Ford’s enterprise was based on continuous improvement, Toyota learned from Henry Ford’s Rouge River plant what they called Toyota Production System. It essentially is Ford Production System
    Henry Ford was a visionary who successfully implemented his vision of “Democratize the Auto”.

  15. I note that your sarcasm does not refute my points.
    Nor does it acknowledge how a well managed insurance portfolio consistently produces profits indefinitely.

  16. You Henry Ford worshippers need to step out of the past and into the present. Everyone is outsourcing and there is no way to stop it. If you don’t do it, your competitors will. As long as Canadians demand more while foreigners settle for less, this country will bleed jobs. The only way to stem the tide is to jack up Canadian productivity, kill off unions and and trim low-skilled wages.

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