We Get What We Quietly Accept

Keep calm and carry on

You’ve probably lost count of how many times you’ve heard that stale motivator after last week’s mortgage rule travesty. 

Brokerage heads are busy reassuring their agents, investors and lender partners that we brokers will persevere and get past this. Well of course we will.

But wouldn’t it be nice if broker leaders spent as much time publicly decrying these rules as they did publicly comforting themselves?

The truth is, we as an industry just got unapologetically shafted by a handful of anonymous policy-makers—policy-makers who sit insulated from the backlash and consumer repercussions in their cozy government office towers. 

There is absolutely nothing to be ‘calm’ about when:

  • broker lenders are forced to hike rates 15-25 bps and ditch products because of a bureaucrat’s stroke of the pen;
  • a world-class lender like First National has its market value hammered six days in row;
  • hard-working qualified Canadian families are told to pay enormously higher interest because—virtually overnight—they’re told they can no longer qualify for a refinance.

We brokers depend on product access. “What could be more damaging to the rank and file mortgage broker than telling their clients that 30-year amortization without a surcharge is only available from a bank?” asks broker Ron Butler. “…Why wouldn’t many consumers just go to the bank?”

Without choice and competitive rates, we’re just another mortgage seller pushing advice and service. Our industry cannot—and will not—grow on advice and service alone.

And the hits just keep coming. We get the next dagger in Q1 when bulk insurance premiums at least double, which will make broker lenders even less competitive. And the grand finale could come next year if/when regulators propose a deductible on insurance claims. Depending on how that’s implemented, some lenders may not survive it.

Keeping calm is not the answer. All that does is show regulators that we’re willing to take whatever rancid medicine they spoon down our throats. It makes them think they can restrict mortgage lending overnight, with virtually no consultation from consumer advocates or people who actually know how mortgage finance works.

Don’t just sit by calmly and tolerate bad policy that threatens your livelihood. Stand up for the tens of millions of Canadians who need mortgages and cost effective refinances. Stand up for the choice and cost savings we deliver as brokers. Tell the media how bureaucrats on the public payroll have unilaterally decided that well-qualified homeowners should pay more to renegotiate their debt—and have fewer options for managing their limited cashflow, despite absolutely no default data to support these moves. (And no, this doesn’t refer to overleveraged borrowers. Those folks should be curtailed.)
Write about this on your blogs, write to the Finance Minister, sign this petition, copy @FinanceCanada on social media, volunteer for association policy committees, tell your MP and tell your broker network’s leadership.

None of this is about broker self-interest. It’s about saving Canadian families literally tens of thousands in interest over their lifetimes, with no material increase in housing risk. It’s about standing up for government sponsorship of the mortgage industry, which has kept defaults low for decades, added billions to government revenue and fostered vital competition in a market dominated by six lenders.

Carry on, yes, but don’t keep calm.

This editorial solely reflects the author’s opinions and not those of this publication’s parent.

  1. Why couldn’t home prices decline by enough to offset all these reg changes, leaving monthly payments are more or less the same going forward as they are today?

    Monolines and brokers would continue to flourish.

    The only sacrifice such a scenario is the “equity” of recent mortgagees.

    1. Good question Tomas. Home prices will ultimately decline, possibly enough to offset these rules. But that doesn’t solve the long-term issues because prices will rise again, consumers will keep paying much more for a mortgage/unsecured debt, folks will continue having fewer financing options and competition will remain hampered with no offsetting reduction in mortgage risk.

      1. “… consumers will keep paying much more for a mortgage/unsecured debt”

        If my monthly payment continues to be $2000 why would I be concerned? Perhaps all this competition isn’t beneficial.

        1. No Rob, it’s just the payment that matters because I want the lowest total outlay for my home over the time I make payments. Price is by far the greatest factor in that equation.

          1. Would you rather have a $2,000 payment that lasts 25 years or a $2,000 payment that lasts 8 years? If all you want is monthly affordability, I can get you an interest-only payment till you die. But I think we can all agree that being debt-free faster is preferable.

    2. C’mon Tom – A least make an attempt to understand the words that Rob took the time to write. This has nothing to do with home values or market prices (although lower prices in some markets might very well be a result). At issue is the way mortgages are fairly originated and how new rule changes are disrupting that balance.

      The brokerage industry is unique by virtue of its originators not being beholden to any one institution. There is no better mechanism for competition than a multi-lender, multi-channel market used by brokers with a fiduciary duty to their clients. Bank/lender employees aren’t free to advocate for consumer choice, and certainly aren’t free to communicate/post about drawbacks or alternatives to their employer.

      Lets not forget the massive subsidy and leg-up that banks already get by being “chartered” in the first place.

      1. Whistler,

        Marching under the flag of “competition” is admirable. However, the government has already assessed this form of competition to be inefficient, perhaps even harmful (only people privy to the closed conversations in Ottawa would know the sentiment).

        More specifically, I think the monoline industry will find more fruit in cultivating alternate funding sources and doing what they can to hasten real estate price decline vs lobbying government to backtrack.

        In other words, the message “…first time buyers hurt, have to save up longer, etc” is the wrong angle to attack the problem from.

        Much better to perpetuate this idea “…sellers and buyers should adjust their expectations downwards to overall materially lower real estate prices”.

        Brokers and monolines can still get their deals. This isn’t the end, but there will be a period of adjustment in price level expectations. Brokers and monolines can do quite a bit to hasten that adjustment.


        1. First-time buyers are not the only ones being damaged here; sellers (especially if you believe prices will fall as result), people selling/buying, and homeowners who want access to equity are all being impacted.

          Headline prices have risen in a select few cities past historical fundamentals, but nationally most Canadians are probably under-leveraged in most housing markets. I say this with a straight face: When you can get 5-20X leverage on a stable, dividend-paying, gains-exempt asset and borrow money at exceptionally low rates for long terms, keeping potential willing homeowners in the rental market is questionable. Especially given that their government is increasingly only lending to its better-off constituents.

        2. Tomas

          You say:
          Marching under the flag of “competition” is admirable. However, the government has already assessed this form of competition to be inefficient, perhaps even harmful (only people privy to the closed conversations in Ottawa would know the sentiment).

          Im wondering why you would say that monolines are inefficient even harmful. There is no evidence of this in any literature. It seems to me to be an inflammatory statement and one that is not in tune with the industry.

          Competition is healthy -Monlines underwriting is harder than banks …

          Are you a broker or a banker? Just askin?

        3. Whistler — you’re going from an academic argument about competition to the financial prospects of the average joe. Forget about making pleas, it’s been decided already. Instead consider what should be the industry’s next move? How do you stay viable?

          Lorilee — what Rob refers to as a “handful of anonymous policy makers” is in fact the Prime Minister and the Minister of Finance. In other words, your industry is aspiring to butt heads with a policy objective. Do you understand? The policy objective is no longer to grow the real estate market. Pulling back on monolines is an obvious button to press. You really think the gov’t didn’t think it through? That they didn’t look at the business being done by monolines?

          I’m neither broker nor banker, i’m an investor who sold FN and bought RY, and I come here to hear what’s being said in the trenches.

          Both of you — there’s plenty of people with 20% down, and qualifying incomes. Go get’em. No one said you can’t.

          1. Tomas, You don’t seem to understand how the system actually works. The Prime Minister and Minister of Finance are essentially figureheads who ask questions, collect and provide high-level feedback and then rubber-stamp the proposals put forth but their top advisors. Most of the real nuances are being decided on by policy advisors. I know who some of these people are by name, and believe me, they’re wholly anonymous even to most industry insiders.

            To suggest that Canadians should blindly swallow the “policy objectives” decreed by bureaucrats in the shadows, who aren’t even prudent enough to consult with those they harm, is absurd. And no, as you’ve read in numerous posts now, Ottawa did not sufficiently think this through. How could they when they created one of the most restrictive mortgage rules of all time, without any real consultation process? Are we to believe that only a handful of DoF staffers, and no one else, have the data and forethought to create optimal policy?

            And your last point is irrelevant. That there are still folks unaffected doesn’t justify abandoning those who are.

        4. Please elaborate Rob. You’re contending the impetus to saw off the legs of monolines came from a cadre of bureaucrats, not the Minister of Finance and the Prime Minister?

          That’s worth a full blog post.

  2. Telling it like it is Rob. Way to go. These rules are unjustified on so many levels. Regulators are all just hoping that this quietly passes.

  3. The federal government has said before they want to get out of the mortgage insurance game. What you are seeing is the first steps of a long term plan to transition all the risk back onto the lenders and ultimately the higher cost will be burdened by the consumers taking on what is deemed to be riskier mortgages as lenders (including big banks) price in more risk without having that government stamp of approval.

    The US also planning to increase their rates and these changes ensure that those borrowing now can pay their mortgages at the higher rates when they renew at the end of their term. We want our industry to be stable in the long run as the confidence of our clients in this industry is what makes us money.

    Prices going into the stratosphere and outpacing wage growth is what is triggering these moves as officials are getting very nervous about the health of the housing market. No one raised any concerns when prices jumped as they did 5-10 years ago as it was great for our business.

    We definitely did enjoy many great golden years but now we must adapt to the new reality of this industry.

    1. Teamocil, This is far from the first step. It’s part of a laundry list of mortgage liquidity reductions and “stealth” borrowing cost increases since 2008. Canada is one of the most overtaxed jurisdictions in the developed world. The very least our government can do for Canadian families is to use its sovereign guarantee to lighten their interest burden. Regulators can cut mortgage risk and maintain housing stability, all while keeping borrower savings and choice intact. It’s not an either/or proposition.

  4. Well, cry me a river! A least SOMETHING is being finally done to rein in the epic bubble. After all, if it had been left to mortgage brokers and the real estate cartel in this country to lend “prudently”, we wouldn’t be in this mess.

    This enormous bubble is already popping in Vancouver and Toronto is next. It’s about time, too.

    1. That mother and father — both working overtime, struggling to save for retirement and give their kids a better life — who now have no way to cost-effectively refinance high-interest debt, surely thank you for your sympathy, Bill.

      Settling for bad government leads to autocratic unaccountable government. Don’t be a settler. Demand better policy, better analysis and data transparency from appointed rule makers who should be answering to Canadians, but aren’t.

      1. Don’t be ridiculous. Most of their cash outflows are probably going to service HUGE mortgages as a result of this bubble. Unfortunately, many people drank the kool-aid and bought into this mess. They will have had “regrets” in any case once the bubble has popped either through lost equity or foreclosure if they could not reset at a “normal” rate of interest.

        All you are suggesting is to kick the can down the road even further.

        1. Bill: You seem obtuse to the facts and miss the point completely. It doesn’t matter what caused the “bubble.” What’s done is done. It is fundamentally unfair to create rules that favour one lender over another. It is also completely irrational to make people pay more for their mortgage or pay extreme interest just because home prices are high. By the way, anyone homeowner with equity likes high home prices. I don’t know any homeowner who wants prices to dive. So you speak for yourself and maybe a minority of buyers who haven’t got it yet. You have no right to expect the majority to give up their capital gains to suit your agenda. If you don’t like high prices, move to another city or rent. Supply and demand don’t cater to you.

        2. Bill, you are 100% correct. The people who say “it doesn’t matter what caused the bubble” are completely missing the point. There are consequences for people who spent way too much with low interest rates when the government warned them not to. Now, they will face the pain of those decisions.

          Rizwan, you are 100% wrong that there are no homeowners that want prices to dive. Anyone who wants to move up in the market is better off with prices coming down and interest rates going up. Test out the numbers if you are unable to comprehend…. 1M at 2.5% is WORSE off long term than the same home for 800K at 4.5%. And stop with the supply and demand arguments — Canadian housing markets have been regulated for a long time. Housing should not be a commodity and it does NOT benefit Canadian citizens for it to be treated that way. It does benefit mortgage brokers as more transactions is more money but at least stop acting like you are defending Canadians while your primary focus is your own pocket book. That is fine if you admit it but it is also fine for Canadians who support government regulations that don’t care about your personal pocket book but do care about long term affordability for Canadians.

          1. Robb, Do you mean to say that regulators should hammer the prices of ~ 20,000,000 Canadians’ homes in order to let ~ 500,000 a year buy at a lower price point?

            On a side note: Perhaps we can lay off the ad hominems about brokers. For one thing, they add zero to a logical debate. For another, you have no way to see into the true motivations of someone in an internet comment forum.

    2. Bill….What, for the love of all that is holy, are you even talking about?

      “If it was left to the Brokers and Real Estate Cartel”?

      You feel as though its better left up to the Chartered Banks to run how things should operate?

      These changes strip away options for home owners, and squeeze out the competition.
      Plain and simple.

      Supply and demand won’t go away.

      1. I meant to say “brokers” in COLLUSION with the RE cartel. Of COURSE the banks have had a big role to play. And, why not? All their loans are guaranteed by the CMHC….”Got a pulse? You now have a mortgage!”

        1. Yes, because borrowers who are required to meet all federal, insurer and lender underwriting guidelines merely have to fog a mirror to get a mortgage in this country. Well, sorry Bill, absurdity like that doesn’t fly here anymore. Welcome to comment purgatory.

  5. Way to go Rob….always enjoy your candid and in my opinion honest interpretation … thanks for having the guts to post what many are thinking but feel they shouldnt say !!

  6. It seems that the government is reducing its availability of risk coverage and thereby, this is taking some of the “loan packagers” and “loan arrangers” out of the game. I agree this will reduce competition as there will be fewer lenders in the market. However, if the risk is really as low as the default rate indicates, then we would expect that products would come to the market which provide the true market pricing that would exist without any government backing.

    Where I live, there is no government backing in the market. Banks also require that purchasers make 20% minimum down payments, banks are free to lend at whatever rate they want (market rates plus some risk spread) and amortizations are essentially optional as well. It’s no different than commercial loans. Why should residential purchasers be seen as any different than a commercial deal, where the same rates are not available and loan ratios are much lower. This is because the government promotes (promoted) home ownership – but does so at the expense of market resource misallocation.

    Basically – the government is ending a subsidized gravy train and that will hurt some people and rebalance the pricing of the assets in the marketplace as well.

    Going off in a rant will get no more sympathy than taxi drivers who complain about Uber being launched. It’s actually going closer to the true free market and some of those who had benefited from a misallocation of resources, will complain bitterly that they are being unfairly treated when the rules are changed.

    1. Darren, A sovereign guarantee will always result in lower borrowing costs, regardless of how low default rates go. So long as risk is minimized (and the government has complete control over this) then the guarantee is a benefit to all citizens in the long run. That’s precisely why parliament sponsored the mortgage market to begin with. And that was absolutely the right thing to do, both socially and economically.

      When one talks about resource misallocation, let’s be clear. There are no misallocated government resources here. Ottawa earns a hefty risk-adjusted profit from its housing role. Moreover, it is pure fantasy to think that another growth driver is waiting in the wings if only we could just reduce housing’s contribution to GDP.

      As for the taxi driver and broker analogy, it doesn’t fit. Non-bank lenders and brokers aren’t trying to thwart competition and raise costs, but exactly the opposite. Uber saves folks untold millions, as do Canada’s 15,000+ mortgage brokers. Lenders and brokers have every right to fight (passionately) for a stable housing market that maximizes consumer choice and savings, and that’s exactly what we’ll continue doing.

      1. The problem is that mortgage brokers don’t save Canadians untold millions. If you look narrowly at interest costs and if you assume that home prices are set externally by some divine force, you’re right. But since home prices are actually set by the marginal buyer, (“Joe Howmuchamonth”), every dime in ‘saved’ interest goes to higher prices, and more debt which needs to be paid off. Canadian households have similar incomes to US households, and our housing stock is similar, yet ours averages twice the price of theirs, and our household debt to income ratios are pretty-freakin’-high and rising. The solution to retirement savings isn’t ever rising home prices and debt ratios.

        Theoretically, I love the idea of mortgage brokers keeping the big banks honest. But in practice, there is very obviously too much credit inflating housing prices. Our government has thus decided that lenders without balance sheets (“cash”) will henceforth be curtailed. Nothing is stopping you from lending your money to deserving borrowers, or from finding private lenders and acting as a conduit. But Ottawa is stopping you from insuring some of those loans and turning them into AAA bonds.

        1. every dime in ‘saved’ interest goes to higher prices

          Sorry Ralph, that is just completely non-factual. Incremental gains in discretionary income do not all go to housing.

          You’re also confusing mortgage discounting with the downtrend in market interest rates. Rate discounting is a relatively trivial factor in home price appreciation. It is the general decline in market interest rates that has really juiced demand, and that is independent of government policy, brokers or anything else you mentioned.

          One more thing. Omitting the other major home price drivers — job growth, income growth, supply constraints, immigration, natural population, urbanization, etc. — does not make your argument more credible. You have to acknowledge these factors, and understand that mortgage policy has limited or no influence on them. Home prices are inflated for a bunch of reasons. Prudent lending and lender competition are simply not root causes.

          At the risk of being repetitive, it is not our position that high home prices are a panacea and overall credit should be liberalized. Let’s not mischaracterize the argument. And let’s not fallaciously suggest that individuals can lend their own money to make up for lost securitization. That is the height of nonsense.

      2. P.S. I completely agree that it is “pure fantasy to think that another growth driver is waiting in the wings if only we could just reduce housing’s contribution to GDP.” But I don’t think that is a justification to continue to support an overdeveloped housing sector. The Harper government stimulated this sector to avoid a deeper recession from the global financial crisis, probably hoping that growth in other sectors would eventually materialize. I think that was a good idea at the time. But we didn’t get the growth in other sectors (quite the contrary in the energy sector) and now here we are. There’s no fairy tale ending with house prices in major markets continuing to climb into the stratosphere to counter our household debt and national balance of trade problems. I think our choices are pain now or more pain later.

        1. Certainly no one wants further housing imbalances. So let’s slow the market if informed policymakers deem that advisable, but do it in a way that targets the riskiest borrowers while preserving savings and choice for the rest of Canadians.

        2. I don’t think housing market imbalances are primarily being driven by the riskiest few percent of borrowers at the margin. They’re being driven by a salaried middle class with good credit scores and lots of equity, and sometimes a bit of intergenerational help.

          CMHC, the Bank of Canada, Statistics Canada and the Department of Finance are staffed by professionals who predate the current government, and who have been studying and modelling the Canadian economy, housing and credit markets, and Canadians’ household balance sheets for years. I assume that the Minister got the best advice and predictions that those organisations could supply before he announced these policy changes. I don’t think there are going to be a lot of “unintended consequences.” I just don’t think the consequences were fully spelled out. If you were running the government and you thought that this was a necessary action, wouldn’t you want to do it earlier in your mandate rather than closer to an election?

        3. Ralph is exactly right that there is either pain now or even more pain later. There had to be action and that is what the Feds did and kudos to them for acting now. The same people who have complained about every change to mortgage rules over the last 6 years are the same ones complaining now. Those changes didn’t break the system and neither will these rule changes. Less people will qualify for homes at current prices so less homes will be sold and prices will decrease. Lower prices are much more important for consumers long term than lower interest rates.

  7. Love your stuff as always Rob. I think it is important to make the distinction between keeping calm and remaining silent. I will continue to advocate for calm. I will also continue to make thoughtful, intelligent, reasoned noise where we can be effective. There are many things wrong with how this was implemented that need to be addressed. I have also witnessed a strong emotionally reaction that purported speculation as fact. That is not a good thing for our industry. For what it is worth I would suggest we do need calm, but not silence.

    If you think about the most effective methods of persuasion, hysterical, emotional reaction is far less effective than thoughtful, reasoned response. All of your points are valid but let’s not confuse ‘calm’ and ‘quiet’.

    My 2 cents

    1. Thanks Mike, One can certainly respect those points. Would just note that fact and emotion are not mutually exclusive. Affected consumers and industry have every right to revolt over haphazard regulation that hits their pocketbooks, and revolt (and meaningful change) rarely comes without emotion. Our industry leaders will calmly express their views to Ottawa, as they’ve already have. But I’ll bet you a steak dinner that little comes of it. In this A.D.D. era, calm is drowned out by infinite noise. Until politicians hear the cries and pain of their constituents and fear losing power, they won’t act. We should come at this from all angles and embrace differences in expression, so long as things are kept factual.

      1. I’m with you but while emotion and fact aren’t mutually exclusive nor are calm and noise. I find it somewhat ironic that I am arguing for calm. I have always been a passionate noisemaker and will continue to be. I am totally with you “as long as things are kept factual”. My caution is that when we get caught up in emotion it can become easy to overlook the facts. I think you cited this recently calling out an article that said these were “unquestionably good” changes.

        So let’s stay informed, make passionate noise on all levels and continue to work together. #heckyeah

    2. Mike, no disrespect, but if a mortgage broker feels that the actions of their own government have a good chance of materially reducing that mortgage broker’s income then thoughtful, calm, measured, intelligent responses tend to go out the window and are replaced with an urgent need to make sure the knife does not go any deeper.

      1. It is not about what is best for consumers because the reality is that a $1M home at 2.25% is worse for the consumer than that same home at 800K at 4.5% over the 25 year amortized period. And by the way, pushing online government petitions just makes the mortgage industry look like amateurs because the only thing sadder than online petitions are people complaining on Twitter.

        1. James’s argument is that he has no argument. He has to criticize the 1700 people who signed this petition to distract people from the real issue, thoughtless regulation that is going to cost us all.

  8. Thank you Rob, can anyone explain why only non-bank lenders have to qualify conventional mortgages at about double the contract rate or else charge a premium or offer a non-competitive rates and yet the banks who do 70% of all he mortgages in the country are still qualifying conventional at the low rates? Maybe the banks stay at those low qualification rates for 6 more months? 9 more months? Who knows when? That’s pure non-competitive foolishness from a group of government officials who care less about fairness or consumer choice.

    There is no argument with the government’s desire to slow down mortgage growth in Canada, I think we are all on board with that but why should our associations and our corporate leadership not stand up and say: “same rules for ALL LENDERS!!!” how can any case be made for meek acceptance? I agree with Rob, there is NO CASE for acceptance of unfair treatment of one group of lenders over another and that case should be made forcefully by our associations and by the corporate leaders. If our associations do not make the fight for fairness a clear, organised, and well publicized battle we should all question the reason for the associations to exist.

    1. The question is who is taking the risk? If the monolines backend insure they are not taking the risk. They are passing it off to the insurers. If that insurer is CMHC all Canadians are taking the risk, not the lender. Say what you will about the banks but they very rarely insure a conventional deal. The bank and their share holders take the risk.

      1. Hi Anne-Marie, One of the biggest fallacies in Canada’s mortgage market is that lenders have no skin in the game. We’ll discuss this more in a few days when we tackle the government’s risk sharing proposal, with special guest Evan Siddall. In the meantime, here’s some education on the risk that lenders take when originating an insured mortgage: https://canadianmortgagetrends.com/canadian_mortgage_trends/2011/02/skin-in-the-game.html

        A side note: Folks who lecture against taxpayer risk without acknowledging the myriad of taxpayer rewards are telling only half the story. Those who fail to recognize the market’s countless checks and balances tell even less of a story. This whole debate boils down to risk-adjusted reward. A one sentence unsupported opinion on who’s taking the risk doesn’t get us very far (absolutely no offense intended).

    2. Ron,

      Compare the potential losses a monoline and BIG BANK face on a default of a monoline’s securitized mortgage vs BIG BANK’s balance sheet financed mortgage. That’s your answer.

  9. I don’t think getting angry about it will necessarily help.

    I hate those keep calm posters though.

    But in this case, I think calmly assess your options and definitely take SOME action – I would agree with you on that. There is no need to be aggressive about it though, since this is unlikely to get results.

  10. The government has the right to not use taxpayer funds to insure mortgages. They feel the risk is too high and they want to divest. Can others not step in and provide funding to monolines? Or is the issue that the costs will now be market costs and not a subsidized government amount?
    As a taxpayer I am happy that the government is not in the real estate game am I wrong?

    1. Dennis is exactly right. More tax payers need to speak up and support these measures and the benefits that will hopefully come from them.

  11. It’s informed and educated opinions that the market is lacking. Thanks for helping others truly understand what is going on here Rob, and the consequences, both intended and unintended.

    First and foremost, the abusers of the government guarantee were the banks, simply to get capital relief for off-balance-sheet assets. Secondly, the risk in the market (read every headline in the Canadian market, and scare tactic) is at the high end, the BC million dollar plus purchase price.

    Look at the facts. The average insured mortgage balance in 2016 is less than 350k. This is NOT the Canadian taxpayer taking on risk for over-inflated million dollar properties. That only exists in embellished headlines.

    Having said that, with low interest rates, it hard to argue against qualifying borrowers at a higher rate to ensure they don’t lose their home when eventually rates go up. But, that’s not the issue here. We aren’t the US. Banks and mono lines actually do fully qualify borrowers, extensively. No liar loans exist in this country.

    Based on the opinions here, it’s apparent that many readers and industry players are buying into the headlines. They don’t understand we can round our arrears rate in this country to almost zero. Why? We fully underwire and qualify borrowers.

    The only true issues facing a real estate bubble are unemployment and immigration declines. Our government would be better served stimulating those key drivers. Because in 7 provinces in this country, GDP is based on real estate.

    I think it would be helpful, because you’re so damn good at it Rob, to articulate to your readers the unintended consequences of removing competition…again, as well as government intervention without knowing what they are doing.

    Remind them of the oligopoly’s posted rates and giant yields before brokers and monlines. Remind them of the unintended consequences of devaluing equity in peoples homes. This isn’t a self-serving message, unless readers think being a Canadian advocate is self serving.

    Here is a question no one can answer. If Canadians are worried about the CMHC’s exposure, ask yourself how much CMHC made for the country in the past 10 years? Billions upon billions, but it’s hard to find this information out. That’s what should scare you.

    Bottom line is the oligopoly will make way more yield, housing market will contract, consumers will pay more, CMHC will take their massive profits and take a back seat, and originators will have less options and get paid less. Banks and government wins, everyone else loses. The time for being naive isn’t now.

  12. I’m with Rob on this one. Calm means a quiet and peaceful state or condition. If the banking czars didn’t bother to consult stakeholders beforehand, what makes anyone think they’ll respond to our peaceful and quiet protests now? We need industry leaders with backbones. They should be shouting from every rooftop about how destructive these rules are to our business and clients. This is one change we cannot afford to take lying down.

  13. Sorry that I couldn’t take the time to read all of these comments (I will tonight).
    Among the things that brokers can do – if you have a chance, get into your local media. Bring them examples of people who could afford to buy in your city. They can still afford the monthly costs, with lots of room to spare, but now they can’t get the financing they need. There will be a lot of these examples available before long. Get that started now.
    Another point. Price declines – once they start, the outcome is unpredictable, except that it’s going to be a lot worse than you expected. i.e. “The only way to stop an avalanche is – well, there is no way to stop an avalanche. Just don’t start avalanches.”

    1. Will,
      You are assuming that a price avalanche is a bad thing. On the contrary, the best thing that could happen to Canadians and the Canadian economy is for prices to drop to a more normal level. If prices correct 20% then Canadians are better off with a 4.5% rate than 2.25%. A price correction is the best thing possible for Canadians. The only ones hurt are those who have refinanced their mortgages based on ridiculous valuations that have sky rocketed over the last 10 years.

      1. “the best thing that could happen to Canadians and the Canadian economy is for prices to drop to a more normal level.”

        Wake-up call James: Prices are already at normal levels in most of the country. Are you referring mainly to Toronto and Vancouver?

        “A price correction is the best thing possible for Canadians.”

        That depends heavily on what specific markets you’re referencing and on the magnitude of the correction. Certainly no one wants to further fuel the housing fire in the minority of markets where values are a problem. But let’s make sure we’re advocating for optimal solutions here.

        A small cadre of armchair housing critics have been rooting for a sell-off for 8 years, with little more support for their positions than what you’ve provided here. Unsupported opinions don’t further information discovery. It’s time to start arguing with data. In that spirit, do share the calculations in your personal housing model that led to this conclusion, factoring in the purported benefits and key repercussions, including the aftereffects on the two-thirds of Canadians who own homes with equity, employment losses, negative wealth effects, rising interest costs, and so on. What is the outcome if prices soft-land instead of sell-off, or if the feds employ regionally-targeted rules instead of blanket national rules. Let’s inject some intelligence in this debate and see what happens.

        1. There seem to be common themes among the people pushing for more regulation. I find them more concerned with being heard than being factual, quick to insult the mortgage industry and pathetically selfish. If they weren’t selfish, they wouldn’t be rooting for 23 million people to lose their equity in a housing crash.

          It would be so nice to just read comments from people who look at both sides of an issue. It gets tiring listening to the unfounded opinions of these pro-regulation zealots. Let them chant “taxpayer risk” over and over again to anyone who will listen, but let them do it on another website.

  14. What happened? Our previous government seemed just as concerned with consumer debt and housing bubbles but they made sure that the government was well informed by those closest to the issues. As the past Gov’t relations chair with CAAMP now MPC, we were in Ottawa and Queens park over and over with factual information about the industry collected by all the major institutions and our economist Will Dunning to keep Ottawa and the regulators across the country informed and keep the media BS* at bay. We were constantly in front of the PMO Office, Ministry of Finance, housing caucus, anyone that will listen to get our points across, keep the government and regulators informed and take back points of concern to the committee so we can come back and address those concerns. So, what happened? Do we now have a government that is listening to someone else? Has it’s own opinion on how to solve the debt and housing issues? Did they only see the media and decide on their own that this was the best course of action to help bring back to health a sick housing and debt issue? This government has decided it will solve perceived problems with uneducated solutions. It’s all of our duties to stand up and let them know the unintended consequences and for all the points above, I don’t need to reiterate them.

    If you are reading this and are a concerned Canadian, for all Canadians, then it is your duty to … “write about this on your blogs, write to the Finance Minister, sign this petition, copy @FinanceCanada on social media, volunteer for association policy committees, tell your MP and tell your broker network’s leadership. “

  15. There’s something I just don’t understand so maybe someone can enlighten me. My understanding is that the current overall LTV for the entire CMHC portfolio is around 54%. This seems like a pretty low LTV to me which implies quite a bit of safety baked into the equation…it seems healthy. With these new rules, going forward, only mortgages over 80% LTV will be added to this portfolio which will only serve to raise the overall LTV as time goes on. So while CMHC is increasing the overall LTV of the portfolio (increasing risk) they will also be chopping the premiums they collect as they no longer offer insurance for loans under 80% LTV. I’m sure these premiums were a pure cash cow as defaults are likely even lower in this space than overall…which is less than half a percent or something.

    Am I wrong to see this as increasing insurer risk while simultaneously reducing the cash they bring in to hedge against these risks?

    1. The problem with looking at “average” statistics for a portfolio of loans is that it’s rarely the average borrower who defaults. If the LTV on your current mortgage is 54% and you get into trouble, you don’t default… you sell the house. The defaulters are likely to be fairly recent mortgages with high LTVs and debt service ratios, and you’d know how they look by looking at the “bottom” few percent of the portfolio. But nobody ever reports those statistics. Average LTV, credit score and DTI ratios are pablum for the masses. The only real information they provide (and it isn’t much) is in seeing how they change over time.

      1. Ralph…I feel like you are kind of making my point with your comment. Going forward CMHC will be loading up the portfolio with loans more likely to fail (new, high LTV loans) while at the same time refusing “free money” (premiums) from loans with a very low likelihood of default (high equity, lower LTV loans). Higher risk, less money to offset that risk no?

        1. Are premiums on low LTV loans really “free money”? They allow banks to hold less capital against the underlying loans, if held on balance sheet. They allow banks and monolines to securitize the loans and get a AAA rating. Result: More lending, and lower interest rates for borrowers.

          Bond investors would rather hold Canada backed AAA bonds paying a miniscule rate of interest than buy uninsured MBS backed by low LTV loans. Why?

          The effect of all this free money seems to be home prices in the GTA and Lower Mainland which are very high and rising in relations to incomes. Prices in many other areas aren’t exactly cheap, either.

          Rather than focusing strictly on the housing market, ask how today’s young Canadians are going to retire. Unless you’ve got an old fashioned defined benefits pension, you need a giant pile of assets to generate a decent retirement income at these interest rates, and home equity doesn’t count. The government is going to find it very difficult to pay OAS (and maybe even GIS) to large numbers of boomers who may be retiring house rick but cash poor, thus technically “low income.”

          Lots of mortgage brokers say they write solid loans to well qualified borrowers, but can they see a path to those borrowers accumulating $1 million plus, in today’s dollars, by the time they retire, not including home equity? For a decent middle class retirement, families should probably be aiming for that number, or higher. Otherwise, home equity is available by radically downsizing or moving to the sticks. We see the results from surveys of household finances and, for a lot of people, they’re bleak. I think the government wants to ensure that Canadians won’t retire in penury, and that means less debt and more savings.

    2. Good observation confused. You’re absolutely right in that insurers will now be prevented from collecting revenue on hundreds of thousands of high-equity low-arrears mortgages. This is revenue that could have added to their capital buffers and stability.

  16. Perhaps the government is looking to shrink CMHC over time into a super tight, even more profitable entity, that they can one day sell on the open market. Maybe split it between Genworth and Canada Guaranty.

    CMHC can keep their research and stats departments – just lose the insurance part, for a fat fee to the Treasury and an observed risky load off the taxpayer.

  17. I’m trying to get my head around these changes.As I see it,

    a) If the assassination of the five year rule really does kick one-fifth of buyers out of the market, that means somewhere around 65,000 fewer new transaction insurance mortgages next year (using CMHC’s 2015 new transactions of 161,495 & assuming the corporation hold a 50% market share).

    b) If the same new rule also pushes down the purchasing power of the second lowest income quintile by 20%, another another 65,000 or so buyers would be hurt.

    In some tightly supplied sub-markets this specific change will likely set off a new round of soaring home prices.

    c) The impact on portfolio insurance is tougher to judge, but if Genworth’s claim that the new rule would effect 50% of their new portfolio business also holds for CMHC, then around $17 billion in new business will be hit.

    If I understand correctly, lenders have only a handful of options to deal with the newly unqualified (maybe I should call them DoF deplorables). They can: refuse to lend; lend uninsured with a premium; or (in some cases) restructure deals to make them insurable, by say reducing the amortization period.

    Even without considering supplemental capital charges and so-called risk sharing, these changes are pretty earth shattering and look to be much bigger than implied by the 8% drop in house sales forecast by the DofF.

    This is far bigger than the 8% national sales drop forecast by the DofF.

  18. These changes looks like it may cool the market a bit. Will it actually do that or hinder our economy? No one knows. Housing is 30% of our current economic contribution. But in the long run instead of lets say 10 offers on a property there will still be lets say 6 offers or at least more than 2. We all know that any given property needs only 2 offers to push the price above fair market value. I just hope mortgage brokers survive in this market. The article mentions about monoline lender employees but they may be hired by competition or even banks. Its the self employeed brokers that are going to take a serious beating.

  19. These changes looks like it may cool the market a bit. Will it actually do that or hinder our economy? No one knows. Housing is 30% of our current economic contribution. But in the long run instead of lets say 10 offers on a property there will still be lets say 6 offers or at least more than 2. We all know that any given property needs only 2 offers to push the price above fair market value. I just hope mortgage brokers survive in this market. The article mentions about monoline lender employees but they may be hired by competition or even banks. Its the self employed brokers that are going to take a serious beating.

  20. You know a few years ago in my profession the government stepped in and made a big mess to take revenue away. There was a huge song and dance by all about it. But it went through and nothing could be done. Work now is somewhat more onerous, but it is what it is. Same here, song and dance, nothing you can change.

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