Evan Siddall

Opinion: CMHC’s Siddall on BNN

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.

 

Evan Siddall
  1. House prices will drop, then you won’t have to keep writing this same blog, Rob.

    Lay down the sword, good sir, it must be awfully heavy to wield. There you go, gently, put it down. Wasn’t that easy?

    ps. told you so, you’d be worse off in June, and now you are.

  2. Is Tomas an alias for Evan?

    Every time there is a Siddall story this guy pipes up with some smart a s s comment that adds nothing to the debate.

  3. I can sympathise — somewhat — with arguments that rule changes have affected some lenders more than others, possibly for no good policy reason. But to be honest, brokers have complained just as vociferously about policy changes which affected all lenders, such as no longer insuring HELOCs or cash-out refis. So it rings a little hollow to say that everyone agrees that policy based credit tightening may be a good and necessary thing, if only it were applied fairly and equally.

    At least you kept the tone civil and resisted the urge to stoop to personal attacks, such as commenting on the man’s unfortunate resemblance to Boris Karloff as Frankenstein’s monster… That would have been a low blow.

    1. The past is beside the point. Trudeau and Morneau either did the right thing this time or they didn’t, and they didn’t. What they did was raise costs on people who are just $100-200 a month from not being able to pay their bills. They should have kept those people from buying houses altogether by raising credit score, TDS and net worth requirements for every lender in Canada. Maybe if they would have spent 10 minutes consulting stakeholders with common sense, they might have known that.

      1. I agree with some of what you said. They should keep their existing changes AND add to the changes as you said: raising credit score, TDS and net worth requirements for every lender in Canada. Again, this should be done in addition to the existing changes.

  4. “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!”

    Yes, you are CORRECT. There are 100s of thousands of people who should keep living at home or paying rent until they can afford to buy a home. What is wrong with that? Home buying is non an inalienable right or something guaranteed by birth. Jeesh.

    1. Many of those 100s of thousands of people shouldn’t get a mortgage. We agree on that.

      But many of them should. Many of them would have easily been approved just eight months ago, using the same conservative lending criteria that has served this country well for decades.

      CMHC’s stated mandate is “To facilitate access to housing and contribute to financial stability in order to help Canadians meet their housing needs.”

      You are proposing alternatives which are not, in fact, alternatives.

      Living at home is not a solution for most young growing families.

      Paying exorbitant urban rents is not a solution for most young growing families.

      With respect to otherwise qualified borrowers, arbitrarily shutting the door on mortgage financing and forcing hundreds of thousands of them to live in a basement or pay high rents is not helping Canadians “meet their housing needs.” Canada has a housing supply problem and while CMHC’s social housing programs may sound great in a press release, they are not solving the underlying problem.

  5. “Paying exorbitant urban rents is not a solution for most young growing families.”
    With capitalization rates as low as 3-4% in places like Toronto & Vancouver, rents are sometimes less than the monthly cashflow required for a mortgage payment, property tax, insurance, …

    I’m sure I won’t be the first to point out that in most large cities in the world (London, NYC, etc), renting is the norm.

    1. Regarding: “With capitalization rates as low as 3-4% in places like Toronto & Vancouver, rents are sometimes less than the monthly cashflow required for a mortgage payment, property tax, insurance, …”

      What exactly are you arguing? That rents are not burdensome in Toronto and Vancouver? That people should just suck it up because rents are high in some other cities? How is that a solution to housing Canadian families and keeping them from being house poor?

      When it comes to market phenomenon, what happens “sometimes” is far less relevant than what happens “typically.” If you’re not familiar with the data on rent levels, you might want to look into it. Condo rents soared 12% y/y in Q4, with the average Toronto condo near $2,000 a month. I don’t need to remind you that people must pay this rent with after tax dollars.

      But it’s not just a cost issue, supply matters too. The rental condo vacancy rate is 1%, the lowest in seven years, says CMHC. Availability for middle-class rental accommodations will absolutely worsen thanks to the Liberal government’s mortgage restrictions, and worsen further given Ontario’s incredibly short-sighted new rent controls.

      Regarding: “I’m sure I won’t be the first to point out that in most large cities in the world (London, NYC, etc), renting is the norm.”

      No one is arguing against renting. The point is that renting in today’s urban markets (where the jobs are) is getting far less affordable, to the point it could create financial system instability over time. Other things equal, mortgage restrictions are driving up rental costs and driving down vacancy. That should surprise no one, especially the bureaucrats setting mortgage policy.

      The Liberal government, CMHC et al, try to position themselves as champions of “affordable housing” and “housing choice.” Well, it’s time they start showing it by addressing the real issue (supply, not credit-driven demand), thereby helping middle class Canadians for a change, not just low-income renters.

  6. “The point is that renting in today’s urban markets (where the jobs are) is getting far less affordable, to the point it could create financial system instability over time.”
    You seem to be grasping at straws, talking about what “could” happen rather than what is likely. I would think a man of your experience would have spent at least a bit of time in Manhattan. The majority of the people that work there can’t afford to live there. Ride the NJ PATH subway from Newark on a weekday morning and you’ll see what I mean.
    And now if most people working in downtown Toronto can’t afford (rent or purchase) a Yorkdale condo, they probably afford a place in Georgetown or Whitby where they can ride a GO train to Union station.

    1. Doncaster, First you imply rents are reasonable (“rents are sometimes less than the monthly cashflow required”). Then you say rents are high, but that’s okay because New York rents are high. Make up your mind and stop being a troll.

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