Friday, November 23, 2012

The battle over the mortgage changes heats up

Wikipedia defines the OFSI (the Office of the Superintendent of Financial Institutions) as an independent agency of the Government of Canada reporting to the Minister of Finance created "to contribute to public confidence in the Canadian financial system".

Seems with all the backlash about recent changes to the regulations surrounding the mortgage industry, the OFSI feels it is in need of some public confidence themselves.

Yesterday the OFSI set up a twitter account.  Their 2nd tweet?
OSFI has authorized CMHC to commence web-based social-networking campaign to booster public image.

Which seems odd because while the OFSI joined twitter yesterday, CMHC has been on twitter since July 2011.  Mind you the sum total of their twitter contribution so far has been only 2 tweets:

The backlash in question, in case you have missed it, is coming from the mortgage broker industry, as the Huffington Post noted a few days ago.

The press coverage comes as CAAMP (the Canadian Association of Accredited Mortgage Professionals)  issued a report declaring that “the changes to mortgage insurance criteria are unnecessarily jeopardizing the health of Canada’s housing markets and the broader economy.”

As the Huffington Post notes:
Ever since Canada’s housing market began swooning earlier this year, mortgage brokers, bankers and real estate agents have been busy telling us that the federal government is to blame, thanks to its tightening of mortgage lending rules this past June.

Never mind the evidence that the most overheated markets were already cooling by the time the mortgage rules were announced; never mind the rather extreme “coincidence” that our housing market began to slide just as we reached household debt levels similar to those seen in the U.S. and U.K. when their housing markets crashed. No; the real problem, according to the industry, is Finance Minister Jim Flaherty’s reduction of government-insured mortgage amortization periods from 30 years to 25.
The CAAMP report presents data to suggest the new rules have priced some percentage of prospective homebuyers out of the market.

According to CAAMP's estimates, if the new mortgage rules had been in place in 2010, 11 per cent of the high-ratio mortgages approved that year wouldn’t have been. A high-ratio mortgage is one where the buyer has put down less than 20% as a down payment.

CAAMP argues that this will impact employment as the construction sector struggles.

And that's the heart of the offensive.  CAAMP argues real estate has become such a significant part of the economy and as real estate goes, so goes the economy... so, federal government, don't stick with the changes you have made to mortgages.

But as the Huffington Post notes:
[CAAMP's] warning about the economic dangers of an overheated housing market could just as easily be an argument for Flaherty’s mortgage rule changes as they are an argument against them. If the economy stands to be devastated by a housing slowdown, then the best thing to do is to stop the overheating as soon as possible — or face an ever larger crash. This is what the mortgage rule changes were meant to accomplish.

And the effect of the mortgage rule changes is really no more than what one would expect to see with a fairly small hike in interest rates.

Right now, a 25-year mortgage at three per cent interest on a $350,000 house (the average price in Canada right now) would cost you $1,656 per month, according to TD Bank’s rate calculator. If the rate went up to four per cent, the payment would jump nearly $200 per month, to $1,847.

According to estimates, the new mortgage rules would jump housing payments on average by $140, due to the shorter repayment periods. In other words, the new mortgage rules have less of an impact on affordability than a one-per-cent interest rate hike.

This is what the real estate industry is freaking out about and blaming Flaherty for — the equivalent of a small hike in interest rates.
The hypocrisy in CAAMP's arguments are gleefully exploited by the Post:
And yet Dunning’s report asserts that “Canadian mortgage borrowers and lenders have been prudent and there is very substantial room to absorb higher interest rates.”

Really? Really?! Our household debt burden is now 163 per cent of household income, a record high and a higher level, slightly, than what the U.S. and U.K. saw before their housing market collapsed.

So how is it that Canadians have room for more debt, when the same debt levels in the U.S. and Britain proved to be unsustainable?

The truth is, Canadians don’t have room for more debt. And the contradictory argument that they can handle higher interest rates but not tougher mortgage rules is proof that the blame-the-mortgage-rules argument doesn’t hold water.

Our housing market isn’t experiencing what Dunning calls a “policy-induced housing slowdown.” It’s experiencing fatigue from excessively high debt levels, and a long run-up in prices, combined with general weakness in the job market and unimpressive wage gains.

Yet it seems the industry will continue to maintain that the blame for the housing market slowdown lies not with the irrational exuberance of a housing bubble, but with the entirely rational efforts to fix it.
You can be sure this battle is only getting started. 

Which is why the OFSI is taking to social media as part of it's counter-offensive.


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.


  1. By their own logic the market is screwed. What they are essentially saying is that buyers are so overextended that $140/month is a deal breaker and effecting the market. I'm stressing when I don't have a couple thousand extra each month, I can't imagine living that close to the edge.

    Let's celebrate Black Friday and Vancouver's housing market with some reflection.

    1. you can't but so many people live paycheck to paycheck and on credit.

    2. I need to backup. There was a time in my life, not too long ago really, where I was living paycheck to paycheck and on credit, I had a lot of debt (well a lot to me). So I CAN imagine. I remember one point where if I hadn't sold a bunch of stuff on craigslist I wouldn't have been able to pay my bills. It was suffocating and oppressive. I dug myself out of debt and made some good professional moves and thankfully am in a much more comfortable position.

      I didn't own any RE at that point, though. I understand how people live paycheck to paycheck, I've been there, but if you own a piece of RE over $200k and you can't afford another $140/month there is something wrong with your math. What do you do if your appliances break, you have to do a repair, your car breaks down, you are in an accident and can't work?

  2. Really great post today, Whisperer.

  3. Thanks for posting that up Whisperer. It's interesting to see who the real dipshits are as this RE bubble develops. CAAMP's way of twisting logic is disgusting.

  4. Is anyone not just LOVING that spike in Silver we just saw. Wheeeeeee. This is a breakout baby. Rock and roll.

    1. And Comex and the Hedgers will take it back down next week... the pattern is so old.

    2. You sure about that? My money is on a breakout and I am sure I am correct. Don't let your cynicism get the best or you or you will miss the ride altogether.

  5. As a mortgage professional and a member of CAAMP I am embarrassed by the comment of this organization.

    It seems to me that they can not recognize that the underlying fundamentals of the market today have changed.

    Instead of admitting that Canadian's debt levels are dangerously high and R/E prices have been driven higher by cheap credit to the point of unaffordable, they choose to lay blame on the Fed.

    A true professional in this business would advise a client not to buy and to wait for a correction in spite of loosing a commission today. (as I have done many times).

    Unfortunately the R/E business is really starting to lose it's integrity.

    BTW I will post this as anonymous as lord knows one can't speak out against ones organization.

    1. Out of curiosity by your best estimates how many of your colleagues believed there was a problem 3 years ago, a year ago, and today? Thanks for speaking out.

    2. "Unfortunately the R/E business is really starting to lose it's integrity."


    3. 4 years ago it was the hay days of mortgage brokering.
      3 years ago the mortgage market was in disarray and nobody knew what was next.
      Today thanks to the Zero Interest Rate Policy we have over extended ourselves.

      The pool of mortgage candidates is getting smaller and the landscape is far more competitive.

      There was a time when backs would offer you a posted rate of 5.69% and you would need a mortgage broker to get the 3.19%. Nowadays banks just offer the same low rate as everyone else.

  6. Unrelated to this thread is a set of charts I came across a little while ago. You folks may have seen some of them before but when you see them all together as a group it sure creates an impression.

    Marc Fabers 50 Charts

  7. “the changes to mortgage insurance criteria are unnecessarily jeopardizing the health of Canada’s housing markets and the broader economy.”

    CAAMP completely discredits itself by implying that the housing market was healthy. An industry based on out-of-control debt accumulation to support it is the antithesis of health. Again, the whole industry is corrupting in integrity and when you look at the big picture these types of positions and responses are actually offensive to long-held Canadian values.

  8. Please enlarge the "OSFI" logo ; )
    (Also, put the french into google translate)

    1. Bwahahaha... seems like someone is having fun.

  9. The new CMHC twitter account seems to be the real deal , replacing the original CMHC twitter page.

    The OSFI account, started few hours after the new CMHC account, is a civillian watchdog.

  10. The Real Estate Industry does not give a dam if a house cost $10 mill, as long as they make a sale and the poor baster will be paying for it for the rest of his/her live.

  11. Dang ol' government is taking away our freedoms!