If you thought Parliament’s hearings on the new mortgage rules was boring, you missed last week’s exchange between MP Ron Liepert and CMHC head, Evan Siddall.

This 4-minute video captures the tension…

Never, to our recollection, has there been such animosity towards the regulatory 3-Amigos: CMHC, OSFI and the Department of Finance. The trio’s insurance policies have ravaged mortgage competition, jacked up borrowing costs and are destined to cost consumers billions (literally billions)…if they’re not overturned. 

With most industry professionals we speak to, there’s an almost palpable loss of respect for federal regulators. It’s unhealthy, it’s unnecessary and it could have all been avoided. 

How? By conferring with industry experts before decreeing their policies, and by preserving sacred competition in Canada’s oligopoly-dominated mortgage market. These two reasonable measures would not have prevented rulemakers from achieving their goal, mitigating consumer debt risk. 

In his testimony, Siddall acknowledged making recommendations to the Finance Minister. Those recommendations resulted in the withdrawal of vital insurance and securitization options for:

  1. refinances
  2. average-priced houses in Toronto and Vancouver
  3. rental properties
  4. amortizations over 25 years, and
  5. low-ratio mortgages qualified at the contract rate.

Had officials justified these specific edicts in their testimony (with relevant data), it might have disarmed their critics. Instead, government representatives unapologetically demonstrated how little they thought about the wake of destruction they’ve left for lenders and consumers.

What follows is a sampling of testimony from one who many consider to be Canada’s biggest promoter of the new rules, Evan Siddall.

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Siddall on why the mortgage industry was never consulted:

“…More often than not our advice and analysis is provided confidentially, given that housing finance policy decisions can affect the marketplace…Broad consultations are not always appropriate.”

Counterpoint:  Industry was consulted countless times before on pending regulation. Given the gravity of these particular rules, this time should not have been an exception. The fed’s defence seems to be that traders might have shorted lenders’ stocks if the government tipped its hand before announcing the rules. But banks are public companies and they were consulted, noted MP Dan Albas. Why did policy-makers find it appropriate to solicit feedback from banks (but virtually no other lenders) before decreeing the most devastating rule changes the non-bank industry has ever seen. With no one to counterbalance regulators’ proposals, the mortgage industry got rash bank-biased policy. Canadian families will now bear layers of new costs, for possibly years to come. (Side note: There’s no reason to blame banks for these rules but, relatively speaking, they do benefit from them.)

Siddall on the damage to mortgage competition:

“…The results of these policy changes were fully intended…We did expect lower levels of competition in certain areas as well as a modest increase in mortgage rates…In our judgment the mortgage insurance regime was providing undesirable stimulus in the marketplace so indeed we sought to remove distortion…”

Counterpoint:  So the government picked favourites. It chose to cripple non-banks instead of raising qualification standards on all lenders equally. Siddall supported these changes despite non-banks demonstrating 50% lower delinquency rates than banks, based on his (CMHC’s) own data. Non-banks, and the brokers they distribute through, have been a primary reason why consumers get bigger discounts on mortgages today than they did two decades ago. But now they’ve been marginalized and consumers will pay the price. By the way, regulators’ idea of “modest” rate increases is up to “50″ bps. That’s up to $6,800 of extra interest on a $300,000 mortgage, over just the first five years. That money could pay someone’s university tuition for a year, or cover a family’s child-care expenses, or pay a homeowner’s hydro bill for four years—all of which are better uses of a family’s hard-earned income than government-imposed interest costs.

Siddall on the government’s key concern:

“…Action, we thought, was…needed to address the level of household indebtedness in Canada…The Bank of Canada calls this factor the greatest vulnerability to our economic outlook”

Counterpoint:  No one can argue that surging consumer debt isn’t dangerous. It is. And the government is reasonable for wanting to take action. But Siddall and his cohorts didn’t just take action. They cut off a leg to treat a gangrenous toe. There were multiple alternative treatments they could have prescribed to keep fringe borrowers from O.D.-ing on debt. (Examples). And all of those methods would have left the patient—Canada’s world-class competitive mortgage market—intact. 

Part II will follow this week…


Sidebar: Here’s a link to all of the Finance Committee’s hearings on mortgage policy.

Commentaries reflect the views of the author and not necessarily the views of this publication’s parent.