More than three months after the Minister of Finance’s surprise unilateral blow to mortgage competition, the mortgage industry keeps fighting back.
“There’s no hope for getting through [to officials] if we can’t keep the pressure on,” DLC President Gary Mauris told CMT. He says his firm is spending “significant” resources to defend the industry’s position that consumers are being harmfully disadvantaged by the new rules.
Below are some of the various initiatives presently underway to reach policy-makers.
Parliament Meetings
On March 6 and 7, some of the biggest names in the broker industry will be in Ottawa attending the first-ever Parliament Hill Advocacy Days.
Organized by Mortgage Professionals Canada, participants include Paul Taylor, Boris Bozic, Jared Dreyer, Dave Teixeira, Dave Trithart, Eddy Cocciollo, Claude Girard, Mark Kerzner, Hali Strandlund, Dan Putnam and Michael Wolfe, among others.
“We have arranged a large number of meetings with MPs, parliamentarian decision-makers and key policy-makers,” MPC said in a statement. Its key asks to parliament:
- Allow refinances to once again be eligible for portfolio insurance
- Decouple the stress test rate from the posted Bank of Canada rate
- Require all mortgages to qualify at the stress test rate, not just insured mortgages.
MPC continues to encourage concerned citizens and industry members to contact their MPs about the inequitable new restrictions. It has set up this page to make that easy.
Bank of Canada Meeting
Lawrence Schembri, Bank of CanadaThe Deputy Governor of the Bank of Canada, Mr. Larry Schembri, has requested a meeting with DLC President Gary Mauris on March 22. Its goal: to hear more “perspectives on the impact of recent policy changes on the housing market.”
“The fact that they are listening and now have asked for our perspective, [via] the Deputy Governor is extremely encouraging,” says Mauris. The Bank of Canada directly advises the Department of Finance.
“I plan on taking hundreds of real-life stories with me to demonstrate the unfair, un-level playing field that these changes have created,” Mauris said in an announcement to his firm. “We are soliciting hundreds of stories from every broker network. We are going to edit, layout and provide submission binders to all MPs, CMHC, the Bank of Canada, etc.”
If you’re a mortgage industry professional and have a client or first-time homebuyer who’s been adversely and unfairly affected by the new policies, you can send that story to Mr. Mauris by March 15.
Finance Committee Hearings
Gary Mauris, DLCMauris also recently spoke in parliament about the rule change. He testified that DLC’s non-prime business has soared from 3-4% of originations three years ago to 12% now.
“The government is driving Canadians into higher costs,” he asserts.
Indeed, the more that Ottawa pulls back from the mortgage market, the more that safe prudent consumers pay. They too get caught in the “risky borrower” dragnet. (If anyone at the Department of Finance and OSFI had the good sense to consult practising home financing experts, they might have realized that sooner.)
Parliament’s Finance Committee is currently preparing a report that could be finalized in April. According to a person we spoke to who’s familiar with the process, the Liberals have a majority on the committee and can essentially veto any recommendations from the opposition that they don’t like. The Minister of Finance’s office may exert pressure on the Liberal MPs to toe the party line here.
After the report is finalized it will be tabled—i.e., publicly announced in Parliament. The Minister of Finance then has 120 days to officially and publicly respond to the committee thereafter. Our source suggests the report may not be tabled (and made public) before the summer, possibly July or August.
In the meantime, the industry will closely watch the Minister’s budget this month—hoping there’s a slight (and we do mean slight) chance that one or more of the rules will be relaxed.
The horrible truth is that a 27% increase in property values in the GTA last month undercuts our position with the government. The really crazy part is that these two things are totally unrelated. The rule changes raised mortgage rates for everyone in Canada and by not making the Qualifying Rate a requirement for every lender in the country that rule change has had zero impact on home buyers, those mortgages just went to unaffected institutions. But the 27% increase has sent chills down the spines of regulators, the DOF and OSFI. Risk sharing can be beaten back because it is just so stupid but a full Spring of 25% increases in the GTA and there will be another round of rule changes. just as sure as the sun comes up in the morning. And for all of those who think a 27% price increases in real estate are “no big thing” consider it means the price of single family detached doubles in less than 3 years and that is just nuts.
I’m not sure why the MPC is saying they would want a unilateral stress test for ALL lenders and banks regardless of LTV. I think they mean they want the stress test to be more realistic (not posted rates), no?
The U.S. has exported perhaps $10 trillion+, but nobody knows how much, in exchange for good things from around the world. It was a great trade for a while. The foreigners get paper created at essentially zero cost, while Americans and Canadians live high on the hog with the goodies those dollars buy. Ultimately, most of these dollars will come back to the U.S. and Canada, to be traded for titles to land and businesses. Apparently there is lots of evidence of this here in Canada.
If this is true, prices will rise, rates will rise, in spite of your lobby efforts.
The prices will rise equivalent to the money supply.
How do you intend to stop this event from playing out, would be a better question.
Now if you are a land owner selling your property, a realtor, a mortgage broker, a lender, and fortunate enough to buy, buyer,… enjoy! Nothing else can be done in my opinion.
I must say I applaud these efforts and hope for a better outcome. However, the 3rd ask (that all lenders must qualify at the stress test rate) sounds extremely self-serving. What this 3rd point is essentially saying is that if mono lines (who rely on govt insurance) must qualify at the stress test, then make all bank have to do the same. In essence, this is saying that if we brokers / mono lines can’t approve the client’s mortgage then nobody should be able to. Not us , then not the banks. Forget that consumer. Is that really the position we want to take? The rest of the argument is all about the consumer and how they will be impacted by the recent changes and then you come off with this 3rd ask which flies in the face on the consumer. The bureaucrats will see right through this self-serving argument.
This is an interesting one, Jim.
The BoC has publicly raised concern about the fast-growing percentage of low-ratio borrowers with high loan-to-income ratios. The DoF is using this evidence, in part, to justify stress-testing low-ratio insured borrowers.
So logically speaking, if debt is a problem for well qualified insured borrowers (and one could argue that’s a weak case), then it must also be a problem for uninsured bank borrowers.
So to not enforce a similar policy on banks is hypocritical, and the industry is not about to let regulators forget that. Either the logic and evidence support the policy on all government-supervised lenders, or they don’t.
I can’t speak for MPC but this is probably their line of thinking with this particular recommendation. And I’d guess that, given the opportunity, they’d support removing the stress test requirement altogether for strong borrowers with 20%+ equity.
It’s also worth remembering that consumers will still have several options if they use a credit union and/or put down 35%+. Hence, contract-rate qualifications will remain available regardless.
Cheers…
It is nothing to with self-serving it is just common sense. The stated reason that insured conventional mortgages should be qualified at 4.64% was to gaurd the consumer (not the lender or insurer) against the danger of future rate hikes. So at the end of a consumer’s 5-year term at 2.49% the consumer is not utterly screwed when faced with a 4.59% renewal. How is that not identically true for consumers with mortgages at other institutions? Sorry, we can certainly argue the facts as to whether the qualifying rate really is necessary but we cannot argue the government’s reason why they made the change. Their position was clear: protect consumers from rate shock the government cannot be allowed to pretend only monoline consumers have the jeopardy and all the other mortgage holders at other lenders don’t.
Hi Rob and thanks for the feedback. If I understand the position correctly then it sounds like they are asking for #3 to protect the consumers from themselves? They want the big banks to follow the stress tests to protect the consumer from over leverage. Not sure that I buy this and neither will they. Point #3 sounds like they want brokers /mono lines to have an equal playing field with the banks so they can compete with the banks. I don’t disagree that equal competition would be great however we should call it what it is or leave it out their position entirely. Just my opinion and nothing else. Thanks again for helping keep brokers informed with your posts Rob. Excellent job once again. Take care.
To Jim:
Here is Websters’ definition of hypocrisy: “behavior that contradicts what one claims to believe.”
Here is an example of hypocrisy: Government forcing monolines to stress test low ratio applicants and not making banks stress test low ratio applicants.
Any questions?
To Spectator:
Here is the major difference: The banks are not asking the tax payer to backstop the mortgage if a bank’s mortgage goes belly up. The tax payer is not at risk. It is the shareholder who has the risk. I repeat – the tax payer is not at risk!!!!!
If a Monoline lender mortgage goes belly up, the taxpayer is left holding the bag. Can you se the difference?
Any questions?
Couple of questions: we know factually that banks have bulk insured billions and billions of their portfolios so if there are defaults the bank will make a claim on the insurers in just the same way the monolines will, so the difference is ……?
Also if the monoline goes broke actually NOTHING happened to the Canadian taxpayer, the mortgage INSURER must go broke before that happens and there are hundreds of millions and in some cases billions of reserves on those insurer books to handle defaults also refer to question #1 as the banks will be making their claims on the insurers as well.
The last question is since the government’s stated reason for the 4.64% qualifying rate was NOT protection of the Canadian tax payer it was to protect consumers from future rate shock. How does that not apply to banks as well as monolines?
To Jim:
What do you think would happen if BMO or CIBC wrote a load of bad mortgages and went down? Do you think CDIC wouldn’t bail out depositors? Do you think the Department of Finance would let them fail and not float them a lifeline?
Who do you think pays if the government pays? Use your noodle.
And yes. I do have one more question for you. How does a monoline go belly up without CMHC knowing about it and stepping in W E L L before it happens? You do realize that CMHC monitors loan performance like every second of every minute of every hour of every day, right????
The governments in Canada refuse to acknowledge the fact that what caused the price jump in Canadian real estate was the foreign buyer influence. All of the statistics have confirmed that so far. The problem of inflated real estate price in Canada can only be resolved with increased supply and the government instead tries in punish local buyers by clamping mortgage rules and artificially increasing mortgage financing costs. There are other ways to deal with Canadian consumer debt levels than developing one formula for every one across the board in the country. First step would be to limit foreign buyers out of the system and encourage supply increase rather than punishment of Canadians with extra fees and rates.
The recent rule changes seem clearly aimed at one or two major markets in Canada with lenders concerned about a correction in Toronto and Vancouver. My thoughts – Toronto has appreciated 27% in the past year- if they gave it all back would it be considered a correction and who would suffer? Have we just engineered a recession in Canada as new home buyers find themselves unable to qualify in the rest of Canada?
How about Ontario’s government release some land so that people who want single family homes can have them? What a novel idea.
The greenbelt in Ontario is the single biggest cause of the price appreciation and the government chooses to battle a supply issue by stifling demand- Brilliant.
Hi Ron,
Thanks for your comments.
On the first one: : we know factually that banks have bulk insured billions and billions of their portfolios so if there are defaults the bank will make a claim on the insurers in just the same way the monolines will, so the difference is ……?
This is precisely why they have introduced the rules so as to minimize potential future losses. The rules prevent all lenders (banks and monolines) from insuring rentals and refinances so all in the same boat here. If a lender needs insurance no matter who they are, they must follow the same rules.
On the second point: Also if the monoline goes broke actually NOTHING happened to the Canadian taxpayer, the mortgage INSURER must go broke before that happens and there are hundreds of millions and in some cases billions of reserves on those insurer books to handle defaults also refer to question #1 as the banks will be making their claims on the insurers as well.
Actually, the profits made by CMHC belong to the tax payer so if a monoline goes broke and CMHC steps in to pay, this is money that leaves the govt coffers, which belongs to tax payers. As such, the tax payer is paying for this.
On the 3rd point: The last question is since the government’s stated reason for the 4.64% qualifying rate was NOT protection of the Canadian tax payer it was to protect consumers from future rate shock. How does that not apply to banks as well as monolines?
If in fact the ONLY reason for the 4.64% qualifying was to protect the consumer from future shock, then you have a point here and all lenders should follow this rule. However, surely they made these changes to protect the tax payer as well. The last thing any gov’t would want to see is a US style crash with the tax payer paying for this. They are clearly trying to minimize the tax payer risk going forward.
On this note, can you really say that CMHC should be backstopping rentals? I would love to hear your thoughts on this.
Thanks
@ Jim Tourkalis wrote: “Actually, the profits made by CMHC belong to the tax payer so if a monoline goes broke and CMHC steps in to pay, this is money that leaves the govt coffers, which belongs to tax payers. As such, the tax payer is paying for this.”
Totally fallacious argument. The money paid in premiums by borrowers are what pay for defaults, not tax payers. That’s how insurance works. IF and WHEN defaults surpass reserves, THEN the tax payer pays. (P.S.Profits are what remain after paying all claims and expenses – the reserves still remain.)
Unless of course you believe that someone else’s money becomes yours simply because the premium was paid to the government.
Hi Jim, Rob and Ron
I believe CMCH profits go to government general revenues.
Presumably low ratio portfolio insurance is a major money maker since claims are likely extremely close to zero.
If that revenue disappears because refinances are no longer insured, does it not follow that taxes somewhere else will have to increase to make up the lost revenue?
No one seems to talk about how profitable CMHC is for the federal government.
How does CMHC insurance on refinances help Canadians buy new homes? What is your argument that the taxpayer should be involved at all in refinances?
Refinances are not meant to help Canadians buy new homes. That’s call a “purchase.”
But refinances do help Canadians stay in their homes, drastically reduce their interest costs, avoid bankruptcy, finance children’s education, pay for medical expenses, fund a business, and help people retire so they’re not a burden on other taxpayers. Apart from exceptional stories about serial refinancers, the overall social utility of refinances is inarguable.
To Spectator:
Your comments make zero sense. The banks have billions and billions of dollars and they would have to burn through that before the tax payer is in the hook should the banks get into trouble. On the other hand, Monolines and their bulk insurance put the tax payer on the hook from deal 1 that is under water. BIG difference my friend. The odds that a big bank needs a gov’t handout to survive is thousands of times smaller than the same happening to a bulk insured mortgage.
On your other question:
“And yes. I do have one more question for you. How does a monoline go belly up without CMHC knowing about it and stepping in W E L L before it happens? You do realize that CMHC monitors loan performance like every second of every minute of every hour of every day, right????”
Who said CMHC does not monitor????? Regardless, makes no difference if they monitor and step in, The point of these changes is to prevent them from having to step in!
By the way – this is my last response to you Spectator. Not wasting any more time with a person too afraid to put their real name on posts.
Jim, couple of points:
“The rules prevent all lenders (banks and monolines) from insuring rentals and refinances so all in the same boat here. If a lender needs insurance no matter who they are, they must follow the same rules.”
There is a fundamental difference between “follow the same rules” and the reality of never being able to compete on refinance business again. I feel strongly that Canadian who already see big banks do 87% of all financial transactions don’t want to see non-banks shut out of competition on mortgage refinance. Very anti-competitive.
“Actually, the profits made by CMHC belong to the tax payer so if a monoline goes broke and CMHC steps in to pay, this is money that leaves the govt coffers, which belongs to tax payers. As such, the tax payer is paying for this”
This is a fundamental misunderstanding. The Monolines cannot really go broke, all their mortgages are insured and sold to banks or into the CMB, the paper is non-recourse. They can shrink and sell the servicing business and wind down but they don’t carry mortgages on their books. Also a basic misunderstanding of insurance reserves, if any of the insurers suffer adverse defaults they dip into their reserves and conceivably they may hit the wall on their reserves at which point the sovereign guarantee would kick in. But reserves are not profits and if your point is that any reduction in profit costs the taxpayer something then the government has reduced CMHC’s profit by limiting insurance on refinance so maybe you should be mad about that.
“The last thing any gov’t would want to see is a US style crash with the tax payer paying for this. They are clearly trying to minimize the tax payer risk going forward”
Another commonly held fallacy, the US crisis was entirely bad underwriting (525 FICO scores buying 110% financed homes with self declared income letters, signed by the borrower) and as one of the biggest mortgage brokers in Canada you know that no such underwriting exists here. All the insurers stress test and at 30% property value reversal and 12% unemployment they barely touch their reserves. If you think the stress test should be more extreme then we might as well argue Zombie Apocalypse scenarios because at that point anything can be justified.
Hi Ron
Thanks for the comments. Just so there is no misunderstanding here, I’m just as disturbed by these changes as the rest of the mortgage brokerage community. These changes WILL have a negative impact on my business as well. We all agree that these changes will bring less competition to the market which will result in higher rates to the consumer down the road.
My original point was that having our industry reps demand that the Big Banks qualify their clients at the stress test rates looks very self serving (which it does). Just be honest about it and ask for this because without it our brokerage industry is at a disadvantage. Don’t push this as it is solely for the hope of saving the consumer because we all know this is not the case at all.