Flaherty’s Recent Mortgage Comments…in Context

Jim-Flaherty-DOFOn May 14, Finance Minister Jim Flaherty was questioned by Julian Beltrame of Canadian Press (CP) about the need for additional mortgage restrictions. Flaherty replied:

I’m not going to intervene in the mortgage market, I don’t need to.

When that quote hit the wires, the mortgage industry breathed a collective sigh of relief. Just days before, news had broken that OSFI was considering new limits on amortizations for those with 20%+ down.

But we have since obtained a transcript of that May 14 CP interview, and there is more to Flaherty’s comments.

“Basically, [Minister Flaherty] was referring to insured mortgages,” said Department of Finance spokesperson Stéphanie Rubec.

As such, it appears that new restrictions on uninsured (conventional) mortgages are not off the table. And, what those might be are anyone’s guess. There’s been speculation that:

  • maximum conventional mortgage amortizations might be cut to 25 years, or
  • conventional amortizations may be left at 35 years but borrowers may have to qualify at (i.e., prove they can afford) a 25-year amortization
  • 5-year fixed borrowers may have to start qualifying at a higher rate, like posted rate (currently they can be qualified at the actual—i.e., “contract”—rate.

OttawaThere is no indication that any of these things will happen, or are imminent. But we know for certain that some policy-makers in Ottawa still aren’t confident that housing/mortgage risk is contained.

Flaherty told CP’s Beltrame, “…I’m satisfied by where we are in terms of insured mortgages, but the Superintendent of Financial Institutions has (the) independent responsibility to watch the financial institutions to make sure that they’re not taking on too much risk.”

“…OSFI’s concern is that some banks may be taking on too much exposure. This has nothing to do with insured mortgages.”

“…What I think the superintendent is looking at is their entire portfolio and what’s insured and what isn’t insured.”

Flaherty added, “I’m also pleased to see some other moderation in new house construction, and in the demand for mortgages. I think these are healthy developments, because we were beginning to see some indications of the beginning of a bubble.”

Despite the above, Kathleen Perchaluk, Press Secretary for the Office of the Minister of Finance, tells us, “…No announcements from the Department of Finance related to uninsured mortgages are planned.”

OSFIOn May 11, OSFI stated, “We are…doing some preliminary consultation with financial institutions. We are working to determine the desirability of some (mortgage) changes given current conditions in housing markets and recent trends in household indebtedness.”

As reported here previously, OSFI says that further uninsured mortgage changes would be subject to a public comment period. That would take some degree of time. But Flaherty was clear: “…If the superintendent (of OSFI) has some concern about the banks’ books…she’ll take the necessary action.”


Rob McLister, CMT

  1. If they are concerned that uninsured mortgage (with 20%+ downpayment) may put the bank at risk then they are really understating the overall concern they have about the housing market.

  2. It’s about that time again. Time for more rules. F has tightened the belt every year for 3 years in a row. He ain’t done yet me thinks.

  3. I heard about both of those news stories separately and I’m still at a loss. He’s not going to interfere in the mortgaeg market anymore, yet he’s still looking at making changes to insured mortgages? Are they not part of the market? And even if the Department of Finance may not be making changes, the OSFI still could, no?

  4. There is a strong chance that potential interest rate hikes will stabilize the market. …no need to introduce new rules.
    Let the market dictate; not the government.

  5. Seems coincidental that the head of OSFI announced a few weeks ago that she is stepping down and a short time later, staff from the Federal Minister of Finance’s office is having direct ” consultation ” with individual banks – behind closed doors – as it were. It appears the Minister’s office wants to control not only CMHC – i.e. insured mortgages – but Uninsured mortgages – mortgages issued directly by banks not requiring CMHC approval. This control was also demonstrated recently by the Minister’s office ” persuading ” banks to raise their interest rates by contacting them directly.
    Perhaps more questions need to be asked
    of where this is going.

  6. All of these small little tweaks here and there are pointless as they could have achieved the same result by keeping everything the same and just drop the GDS requirement back to 2000 levels (or earlier). As they have it now, they should implement the 5 year fixed qualifying requirement (suprised they didn’t do it last time) as it also created a wierd spot where the less qualified ran to the 5 year fixed as they couldn’t qualify under the 4 year fixed higher qualification rate (which translated in around a 20% larger mortgage approval for going with a 5 year term).
    I still don’t agree with imposing stricter rules on uninsured mortgages

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