CMHC top-boss Evan Siddall was interviewed Thursday on BNN. He made a few comments that stood out like a neon sign.
Greg Bonnell asked him if federal policy changes (i.e., the drastic increases to low-ratio insurance premiums, the elimination of default insurance products, the new “stress test” and so on) were “too blunt of an instrument” and “a hammer to kill a fly?”
“No…,” Siddall said, offering scant explanation for why the government “pulled back from artificial stimulus” (as he put it) in the way it did. For those unfamiliar with the changes, this “pulling back of stimulus” refers to the withdrawal of default insurance options for lenders and the spike in insurance costs. Those measures put small and mid-size lenders at a greater competitive disadvantage and raised costs for millions of prime borrowers.
Siddall chose not to take this opportunity and explain why the policy changes were the best solution to housing overvaluation and over-indebtedness—which virtually everyone agrees are serious issues. To date, the government has never publicly elaborated on why it decided not to tighten borrower qualifications on all lenders industry-wide. Banks may not insure most of their mortgages, but they certainly self-insure them. Given banks’ systemic importance to our economy, you’d think regulators would want to impose the same macro-prudence on them as they did on insurers and insured lenders.
When questioned about the impact of said changes, including CMHC’s dramatic drop in insurance volumes, Siddall seemed almost dismissive. He said portfolio insurance—which fell a stunning 87.3% at CMHC in Q1—is meant to “help banks fund mortgages.” To a casual observer who believes banks can fend for themselves, that doesn’t sound like anything to fret over.
In fact, portfolio insurance wasn’t designed for banks, particularly big banks. Most lenders in this country are not banks. Portfolio insurance was created for big-bank challengers for the key purpose of protecting consumers.
Here’s how CMHC characterized portfolio insurance before the new rules:
“Portfolio insurance helps…small lenders to compete on an equal footing with large lenders. It allows more lenders to compete in the mortgage loan insurance market…thus expanding consumer choice.”—CMHC
But forget about that, because transactional insurance is the important stuff, Siddall appears to suggest during the interview. For it is transactional insurance that is used by “mom and pop, day-to-day” borrowers, he argues. (Let it be noted that responsible homeowners with 20%+ equity don’t meet the standard of “mom and pop, day-to-day” borrowers.)
Fear not, in any case, because transactional insurance fell only “about 20%,” Siddall assured. (In fact, it fell almost 23% in Q1, not to be hair-splitters.)
We can rest easy though, because that 23% plunge was “a little less than we thought it was going to be,” he says.
Fantastic. So just one-in-five insured borrowers cannot buy a home suddenly. Hundreds of thousands of people can keep living in their parents’ guest room or pay soaring urban rents. It’s all good!
Listen. Enough already.
This needs to be called what it is. This interview was just one more act in a well-rehearsed play where policy-makers publicly downplay the consequences of their actions, namely:
The burdensome new costs they’ve imposed on the 70% of Canadians who rely on mortgage financing
The havoc they’ve wrought on lending competition
The loss of insurer and securitization revenue, which used to reduce every Canadian’s tax bill
The added risk that banks are now bearing, given they’re being overloaded with uninsured (formerly insured) refinance, super-jumbo, long amortization and rental business.
There was another way to temper home demand, tackle indebtedness and decrease taxpayer risk without costly side effects for responsible borrowers: strengthening qualification guidelines on all lenders equitably.
Until Ottawa’s policy leaders prove that their way was the best way, industry outrage isn’t going away. Specious narratives fed to media—who are too polite or too unversed to challenge the interviewee—will not go unchecked. Not here.