Say hello to the decision makers
This post is all about contacting your representatives in government – getting clarification on where they stand regarding housing economics, and letting them know where you stand as a voter. Many readers on this site have mentioned the importance of writing to your MP, so I figure it’s high time we do a story thread where we can share ideas and contact information.
First off a list of Vancouver area members of Parliament including email links and mailing addresses. (thanks Drachen for the link)
Now a few questions / opinions I have for my MP. I should clarify these are just points for discussion and not intended to be copy and pasted into an email. Writing a letter in your own words will likely be more effective than a form letter.
The Canadian Mortgage and Housing Corporation
I believe that the CMHC is flooding too much cheap credit into the housing market temporarily driving up prices. Where do you stand on the CMHC and how effective do you feel they are addressing their mandate of making housing affordable to Canadians? Is ‘affordability’ measured best as temporarily low monthly payments or as total debt load?
OSFI Conversion to International Financial Reporting Standards
The Office of the Superintendent of Financial Institutions Canada (OSFI) has a draft advisory (pdf) that is set to be put into effect at the end of this year. There has been some opposition to implementing these changes at this time. Where do you stand on the OSFI advisory, specifically on taxpayer funded securitization of mortgage debt?
* You may wish to contact the Honorable James M. Flaherty on this topic
Bailouts for speculators and negative equity homeowners
As housing prices fell in the US, there were a number of government bailouts and stimulus measures that tried to prop up the market. These measures have so far failed to keep house prices from falling more than %50 in cities like Las Vegas and Miami. Where do you stand on bailouts or other measures that attempt to prop up housing markets? If foreclosure rates rise further in Vancouver, what sort of action would you take if any? Would you support or oppose bailouts?
So what do you think? What do you want your MP to know and what issues do you want them to clarify their stand on? Are there other Government entities that you think would be worth contacting? Post your thoughts, letter excerpts and ideas in the comment section below.
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December 14th, 2009 at 12:27 am
Dear Mr. Cummins, MP,
I am one of your supporters, voted for you recently along with my wife.
As a member of the Vancouver-Condo-Info “think tank”, I would like to ask you the following questions.
Other members of the “think-tank” are asking their representatives the same question and I would also like to ask your permission to post your kind reply in the internet forum found at http://vancouvercondo.info/
Questions:
The Canadian Mortgage and Housing Corporation
I believe that the CMHC…
….. [ Copy paste original]
…Would you support or oppose bailouts?
Thank you very much for your time, and have a happy holiday season.
Best Regards
arit (used real name), Richmond BC
December 14th, 2009 at 12:29 am
I sent the mail just now, let’s see if there is any reply. I hope I get his permission to post the reply.
Pope, Great idea.
Regards
arit
December 14th, 2009 at 12:40 am
Everyone in Ottawa knows there is a housing bubble. The only question is who takes the blame. Carney won’t raise rates early. Flaherty won’t reign in the CMHC. They’re all hoping it will burst on its own so they can collectively blame Canadians instead of the reverse.
http://www.reuters.com/article.....9920091211
December 14th, 2009 at 1:20 am
Responses:
1. Cmhc
We do things that are poplar. This is popular. Not doing this is not popular. Even though you would benefit from it, I cannot commit to your suggestion, thanks.
2. Conversion to whatever standards.
Wha? What kind of policy wonk are you? Chicken in every garage, car in every pot etc. etc.
3. Bailouts.
None are planned at the moment. So, give me a call when you hear of the first one, and, well, I’ll figure out if I have more constituents who benefit from the bailout v. those who notice they are disadvantaged. You can see where I might go with that…
Kindest regards, etc., Beauregarde Frumpyface MP.
December 14th, 2009 at 2:24 am
I seem to recall someone asking if I thought there’s any influencing on this board. Hope this article answers your question.
December 14th, 2009 at 8:57 am
@rp:
Correct, and Flaherty has already indicated this by his comments on how Canadians should be more responsible with regards to mortgage payments. No mention of course of who the enabler is. It’s like serving free drinks and then lecturing people for being drunk.
And IMHO the opposition parties are keeping mum because if they speak out now. the “Convervatives” will blame them for bringing on the bust (which they all know is inevitable), by being “negative”, “anti-home ownership” etc. So they will just sit and wait and try to lay the blame after the fact. Perhaps the BQ might jump the gun as Quebeckers don’t share the bubble mentality.
And the ultimate blame lies not with the politicians but with the Canadian public, who think they can get something for nothing from a RE bubble and don’t want to be told otherwise.
December 14th, 2009 at 8:58 am
Now that the snow has arrived in Vancouver everyone will be buying condos downtown to avoid the commute. I expect huge sales in the condo market this afternoon once fraser valley commuters realise their mistake. I figure all the rich asians will also buy since snow makes for good winter olympic conditions.
December 14th, 2009 at 9:28 am
Thanks Arit, but I would recommend people do not copy and paste what I’ve written – these are just a few thoughts. If you choose to contact your MP I believe your letter will have more impact if its written in your own words rather than a copy of something they’ve seen before.
@california: The readership on this board is not large enough to make any immediate impact, particularly on large national issues such as these. It’s still worth contacting your MP so that they know that your paying attention to this issue and where you stand.
The only way to make 100% sure you have no affect is to do nothing.
I know many readers here are bankers and economists – if you have an opinion on this issue and choose to write in you may want to mention your professional qualifications. The growing warning rumbles from lenders and bank economists are getting harder to ignore. Lets at least help minimize the ‘nobody saw this coming’ defense we saw in the US.
December 14th, 2009 at 9:52 am
“Household debt is the biggest risk to the financial system”
— Mark Carney
“God damn the pusher man”
— Steppenwolf
“Perhaps the BQ might jump the gun as Quebeckers don’t share the bubble mentality.”
Perhaps, as it would be politically untenable for the feds to bail out Vancouver speculators.
December 14th, 2009 at 10:41 am
You can fax the letter to save some postage.
http://www.GotFreeFax.com gives you two free faxes a day. faxzero.com gives you another two free faxes (but with Ads).
December 14th, 2009 at 11:05 am
I did write my MP about the CMHC issue. No reply (mine’s an NDPer).
The writing seems to be on the wall now, there’s certainly more attention in the media about the “bubble” and other areas where we may be in trouble financially (just today a story about our debt/income ratio). The warning signs are all there, it’s just a matter of time.
December 14th, 2009 at 11:54 am
Pope:
excellent post! Thanks a lot for taking the time to put it down so eloquently.
I cannot stress enough the importance of making your self heard, in a polite and constructive way. Even though politician may receive many solicitations, housing is quite a big topic and they will certainly read your feedback carefully, if nothing to gauge the public opinions on this matter.
Although the blog is small, enough emails can help put the topic on the table, and clarify that there is a fair amount of opposition to CMHC backstopping and taxpayers’ guarantees.
Write to your MPs and to Flaherty. You will see, something will come out of it.
December 14th, 2009 at 12:48 pm
Great topic! I’ve got a moment and I’m typing up a letter now.
@James: Good tip, but you don’t actually need any postage to send mail to parliament:
http://www2.parl.gc.ca/Parlinf.....ryHOC.aspx
I would encourage everyone to write a physical letter, as I suspect they are more likely to be read. I agree with Domus as well, be as polite and clear as you can be. You don’t need to get everything in one letter, it’s probably better to keep your notes as short and simple as you can, but request a response.
I look forward to seeing what sort of responses we get. Can we have a follow up post in a week or so to see them?
December 14th, 2009 at 1:42 pm
They should enact legislation which stipulates no government backing of CMHC, and CMHC bonds, so they are only backed by the insurance premiums they collect. They should stop buying up CMHC bonds to prevent further risk to taxpayers.
December 14th, 2009 at 2:12 pm
I’ve sent mine. It’s time to stop sitting around complaining and doing nothing!
Dear Mr. Saxton,
Why is nobody in Parliament talking about our housing bubble? Isn’t it time to rein in the banks and the CHMC and slow things down a little?
My husband and I are both professionals, earn decent salaries, yet cannot afford a home in the Lower Mainland. I suppose we could overextend ourselves, as many others have, and take on a ridiculously high mortgage, but we have decided not to. We don’t want to put our family at risk, and we feel that the market is in a bubble because of easy credit made possible due to low interest rates and CMHC insurance.
I am concerned that the banks have no reason to lend prudently since most mortgages these days are CMHC-backed. I am concerned that people are taking on more debt they can afford. What will happen once interest rates go up? What happens if people can no longer afford to make payments? What will happen if the housing market tanks? Will homeowners who have taken on too much debt be bailed out by taxpayers as well?
And then what will happen to those of us who waited prudently for the market to turn? Who have managed our budgets well? Will we be punished? Will we end up paying continually higher taxes to pay for the bailouts of all those who were not careful with their money (car companies, media companies, CMHC, homeowners facing foreclosure, the City of Vancouver, whoever comes begging for help due to poor decision making….)?
Isn’t it time for politicians to face facts and make some plans? Isn’t it time to DO SOMETHING???
December 14th, 2009 at 2:22 pm
Arit,
I would not reference this site as a pseudo “think tank.” One quick link to this site and you soon realize that this is just a blog, absent of any common mission or messaging. Referencing this site would immediately undermine your credibility, especially if a staff or bureaucrat looks at the comments on this board (no offense to anyone).
If you are writing a letter, you need messaging that is common amongst all letters to MPs, but with a personal twist. That messaging should be thematic, and it should “lead” elected officials to a “logical conclusion” (e.g. no bailouts for overextended buyers, changes in CMCH requirements, etc).
For instance, you could: identify concerns around taxpayers funding the CMHC and the recent significant increase in the amount CMHC is covering in recent years; acknowledge concerns over Canada’s negative savings rate and rising debt levels; highlight the international context of deflating RE bubbles due to similar lending practices; identify the moral hazard associated with bailouts; etc
Interjecting a limited number of statistical references, that have been highlighted in mainstream media (sorry, they are viewed as “credible” even if we all know better) may help support your position (e.g. the expenditure of 140% of household income).
You could end with a very brief personal anecdote, or personal statement, which highlights the benefit of being prudent and living within your means. For instance, “As a fireman with three dependents, I have tried live within my means, avoid excessive debt, and save for the future. I sincerely hope that the federal government does not contemplate any bailouts for overextended buyers which would force me to pay for the excesses of other individuals. As Canadians, we should not be in the business of privatizing gains when the market is strong but socializing the losses when the market returns to fundamentals”
This type of approach highlights broader public policy issues that can be dealt with at a bureaucratic level, while simultaneously giving the elected official the personal anecdote that can be raised in Parliament and help with posturing.
Just some thoughts…
December 14th, 2009 at 3:03 pm
GR,
Thanks for your reply.
Regarding:
“I would not reference this site as a pseudo “think tank.” One quick link to this site and you soon realize that this is just a blog, absent of any common mission or messaging.”
Obviously this is a subjective topic. Is there a gold-standard for a think tank? Does it have to be 10 people from the same line of work meeting in a crowded meeting room yelling at each other?
Or maybe it can be a group of people from all over the socio-economic spectrum meeting to think and share thoughts about ONE topic that concerns them (“common mission or messaging”)?
How many hours does a “standard think-tank” work on a topic? Maybe a one hour daily meeting for a full 20-day working month, with 10 people in it? Totalling 20*10*10=2000 man-hours?
How about a non-standard think tank with an average 200 contributors spending 1 hour a day for 5 years, for a total of 365000 man-hours?
How about the different perspectives we get here from bankers, engineers, construction workers, mortgage lenders, men, women, homosexuals, realtors and many many others?
WHERE is the “collective intelligence” greater?
————————-
I can only speak for myself, but since joining this “think-tank”, my “real estate IQ” has increased exponentially. I know now hundreds of things I did not know before, and hundreds of people are privileged to know what “sticker-flicker” is!!!
So you might be right, this is not a standard think tank, but a standard think-tank IS responsible for the olympic village, right?
Best regards
arit
December 14th, 2009 at 3:03 pm
GR: cogent advice. I now go to my printer to print my version of said letter.
Merry Xmas all – as the snowstorm looms.
December 14th, 2009 at 3:23 pm
Arit,
I understand your points, and equally acknowledge that my RE IQ has increased from reading this board. And yes, many posters have done their due diligence as well as significant amounts of research and modeling.
That being said, we live in a world of credentialism, where at least from a government relations perspective, credibility rests with the old fashioned brick and mortar think tanks who have staff with nice letters behind their names to “support” their positions.
This neither negates the collective intelligence of this board nor the fact that many of its contributers have many degrees behind their names. But the fact of the matter is that this “think tank” also has many contributors that throw around derogatory names, insults, and incoherent statements. That is the nature of a blog, and that is fine, but it is not the nature of a respected think tank.
Moreover, does this board have policy papers? Do its “contributors” sit on esteemed panels? Is this blog known as a go to place for media (beyond the local level)? The answer, collectively, is no.
At best, I would reference this site as a resource, or information source, that can help spurn critical debate and understanding. Again, this is not to undermine the value of this site, as these comments are made to simply acknowledge that from a lobbying perspective, I would call this site something other than a think tank.
Your points about representing a broad range of individuals is valid, and from a participatory democratic model, quite useful. That is why I said in my previous post to include a personal anecdote to illustrate the fact that a wide variety of individuals are concerned about the current situation.
December 14th, 2009 at 3:45 pm
Everyone has a fantasy of one day becoming rich and owning nice property. Some can actually achieve this dream and others cannot. Those who cannot frequently seek out others who cannot and they discuss the reasons why this is someone else’s fault etc. That is what this website is. It’s a place for poor renters to bitch about their wealthy landlords. What you bears should do is focus on your own lives instead of always trying to blame your problems on some supposed bubble and other nonsense.
December 14th, 2009 at 3:47 pm
Hi GR,
Ok, you are right. As you know, I have already sent my “less than perfect” letter. Please do share with us your letter so I can learn for the next time
Best regards
arit
December 14th, 2009 at 3:51 pm
And 20 is a perfect example of my comment:
” But the fact of the matter is that this “think tank” also has many contributors that throw around derogatory names, insults, and incoherent statements.”
Arit, I will try to share a template post Christmas.
December 14th, 2009 at 3:54 pm
Merril Lynch report:
http://www.theglobeandmail.com.....le1400028/
December 14th, 2009 at 4:13 pm
@observer:
They can’t do that. CMHC is a Crown corporation and rescinding the Crown guarantee on its debt would be tantamount to a sovereign debt default. The consequences would be catastrophic.
The simple solution would just be to summarily stop CMHC from guaranteeing new mortgages or buying them, and let the private sector supply capital as it sees fit (but with no relaxation on the 80% rule for banks). And no legislation would be required, a memo from the cabinet would suffice. Over time CMHC’s debt would be retired and it could focus on things like building standards rather than force feeding capital into housing.
That is about as likely to happen as Gilles Duceppe joining one of the federalist parties.
But what may well happen once the smoke clears is the imposition of sane financing requirements, such as 10/25 and a price;/income cap. That would suffice to prevent future bubbles IMHO.
December 14th, 2009 at 4:53 pm
Oh,
I went to canada post, and no postage is needed for letters send to MPs. (only letters, no package.
December 14th, 2009 at 5:16 pm
Has anyone written to Flaherty as well?
December 14th, 2009 at 5:25 pm
“Everyone has a fantasy of one day becoming rich and owning nice property”
Not really – and it’s that world view that is causing this bubble. Compared to most of the world’s population, we are incredibly privileged, even us “bitter renters”. Personally I value the comfortable life I lead, the toys I own, and they fact that I can move when I feel like it without having the ball & chain of a mortgage. And I already am part-owner of some very nice rec property – far outside Vancouver.
What concerns me is the damage these bubbles do to the personality, psyche and economy of a city. I sure liked Vancouver a lot better 10-15 years ago when it didn’t have it’s collective head so far up it’s own ass in an orgy of self-congratulation and faux-bourgeious pretentiousness. Those same people living the lifestyle so well marketed on presale flyers of yore are going to be awfully house-poor very shortly.
Revolution is nice to think about, but when it comes, a lot of good & worthwhile things get smashed in the excitement, and a lot of people get hurt.
December 14th, 2009 at 5:34 pm
@GR:
No Housing Bubble Trouble
by Alan Reynolds
Alan Reynolds is a senior fellow with the Cato Institute and a nationally syndicated columnist.
Added to cato.org on January 9, 2005
This article originally appeared in the Washington Times on January 9, 2005
The Cato Institute’s local counterpart, the Fraser Institute, is less personal (being Canadian and more polite) but ofter just as nonsensical. They have learned one lesson from the debacle south of the border in that they are not openly denying a housing bubble in Canada, but simply refusing to talk about it. They are however on record as supporting government intervention in the housing market in favour of owner-occupancy including CMHC insurance. As Mish has pointed out, all government intervention in favour of owner-occupancy makes housing less affordable.
December 14th, 2009 at 5:38 pm
@richasian:
…… It’s a place for poor renters to bitch about their wealthy landlords. …..
Yes, my landloard is such a nice guy. I pay him $1,500/ month to help cover the $10,000/ month mortgage he has on the house I live in. $3M later, when his mortage is paid off. I’ll really be sorry I didn’t buy.
December 14th, 2009 at 6:06 pm
28
Your point being? Is it that the CATO institute has a blog where there is some lively discussion? Or that by virtue of a blog, they are now credible? Or that because they failed to call a housing bubble and employed nonsensical arguments that they are somehow not a “credible” think tank?
Keep in mind the CATO institute is “credible” in some circles because they have been around for 30 plus years, have a healthy staff complement, have numerous publications, policy scholars, are recognized by national media – all the things I mentioned or alluded to that are required to be a “credible” think tank.
And if you are referencing their blog, yes, they have one. And yes they use “newer” forms of social media to communicate their message. However, these forms compliment traditional forms of communication which are central to their policy advocacy.
If you are referencing their position as “nonsensical,” that may be the case. They were proven wrong. However, it is largely irrelevant because again, they have the “credentials” to make them “credible” and people will continue to listen to them.
If you think that this site is somehow comparable to the CATO institute, then indeed there are some credibility issues here. By all means, lets go ahead and revamp the site and under the section “Policy Scholars,” list “Rich Asian” and “Supraboy” and lets see how seriously people take this as a “think tank.”
Sorry, I am just trying to point out that while the posters on this site might have their views validated down the road, it does not mean that they will somehow emerge as credible policy analysts or advocates. WHEN we are in the midst of a housing collapse, and the people say “no one saw this coming,” I doubt that they will point and say “VancouverCondo did.”
Credentialism is here to stay, as we have all been socialized to trust informed and educated people that have shiny offices where their degrees hang. Sometimes you have to play by the “rules” to change the system….
December 14th, 2009 at 6:39 pm
@GR:
That at least one “respected think tank” does in fact throw around “derogatory names, insults, and incoherent statements”. IMHO just about all “think tanks” in fact have the express purpose of producing tendentious research, i.e. starting with a predetermined ideological position and picking facts and twisting logic to support that position. Or in plainer language, spouting BS.
To the best of my knowledge, no “think tank” anywhere, with the honourable exception of the Von Mises Institute, called the housing bubble in any country in which it was extant. That’s a pretty wretched track record, given that a major business publication (the Economist), the world’s most successful investor (Warren Buffett), and prominent academics (Robert Shiller, Paul Krugman, Nouriel Roubini among others) managed to do so. So if they missed the boat on this, why should anyone take them seriously about anything?
December 14th, 2009 at 6:59 pm
Patriotz good post but Krugman didn’t just call the bubble he was an advocate of it.
December 14th, 2009 at 7:32 pm
#32 @other ted: Link? I don’t recall Krugman being an advocate of the bubble. I do remember this column:
http://www.nytimes.com/2005/08.....ugman.html
December 14th, 2009 at 7:33 pm
@other ted: You mean Paul Krugman, Nobel Prize laureate, professor at Princeton, and op-ed columnist at the New York Times? He advocated for the housing bubble? Really? Please find a citation for me as I’ve been reading Krugman for years and can’t remember him advocating for a housing bubble…
TIA,
December 14th, 2009 at 7:57 pm
http://www.businessinsider.com.....ble-2009-6
December 14th, 2009 at 7:58 pm
last one was me. No idea why nonymouse popped in as my name
December 14th, 2009 at 7:59 pm
@D. Bone:
Just keep making up stories to make yourself feel better bear. It’s ok that you’re a loser. Not everyone can be a winner by definition.
December 14th, 2009 at 7:59 pm
And OAS so what if Paul Krugman is a nobel prize winner, so are Obama, Gore, Moniz just to name a few disgraceful winners.
December 14th, 2009 at 8:21 pm
“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
That’s a pretty weak indictment. Also note that that column was written in August 2002, with the rate at 1.75%. Three months later they dropped it to 1.25%, then in June 2003 it went to 1% and stayed there for a year. This part of the policy was clearly insane, and seemed to be a play by Greenspan to get Bush reelected.
http://www.newyorkfed.org/mark.....drate.html
December 14th, 2009 at 8:46 pm
It’s a problem the Bank of Canada warned about last week when it called rising consumer debt from Canadians buying into the hot housing market the top risk to the country’s financial system.
Higher interest rates, more household debt raises fears for households
“We could overextend ourselves, as many others have, and take on a ridiculously high mortgage, but we have decided not to.” « Vancouver Real Estate Anecdote Archive Says:
December 14th, 2009 at 9:29 pm
[...] December 2009 · Leave a Comment This from Let’sGetOurFactsStraight at vancouvercondo.info 14 Dec 2009 at 2:12 pm [...]
December 14th, 2009 at 9:52 pm
@other ted: I wasn’t mentioning Krugman’s credentials as an attempt at argumentum ad verecundiam, but merely establish clarity about the identity of the individual to whom you were referring. I found that necessary because, as I mentioned in an earlier message, nothing that I have read by Krugman is would support your contention that he was an advocat of the housing bubble as sound economic policy. I then assumed that you may be talking about a different Paul Krugman.
December 14th, 2009 at 10:50 pm
@patriotz: You are right, you can’t rescind this on past CMHC bonds and doing this on future bonds would require introducing a new type of bond, call it CMHC B bonds if you will. But all of this is very unlikely I agree.
I think CMHC could still operate as insurance company but it would need to be broken up into smaller pieces (so not too big to fail) and operate on the understanding that it could fail. That would force banks and bond holders to price in the risk and be more prudent in lending. The government would should also regulate these mortgage insurance companies so they are well capitalized and supervised closely. More complicated yes, but that is the price of allowing people to buy with little down payment and longer amortizations.
Your predicted outcome is simpler and better in my view. But there is big gap between that and how things operate now so it would have to wait until catastrophe forced change upon us. I also think that it would be politically difficult to restrict home buying to 10/25, even though that would be exactly the right thing to do. Ironically, people who can’t afford homes at current prices might complain, even they would stand to benefit the most in the long run after prices fell to healthy levels.
Essentially, imposing such a restriction is taxing people who got rich doing nothing and putting it back into the economy in the form of cheaper housing. So instead of directing a large proportion of our capital raising to feed the RE ponzi scheme, it could instead be used to to actually create and encourage useful businesses that benefit and create value for the economy. On the other hand, it would mean fewer mortgage slaves, though mortgage slaves are only useful if they don’t default, which they probably will once rates rise.
Although I was always skeptical about the saying that our RE would start to decline after the olympics, several factors are now amazingly converging to this folklore prediction. Firstly, the winding down of MBS purchase programs and possibility of higher mortgage rates in the spring. Shadow inventory holding out until the olympics are over, waiting to be unleashed (workers and visitors leave, no longer needing housing here). The risk of a second dip, causing interest rates to stay low but all other economic factors to figure negatively into RE.
December 14th, 2009 at 11:02 pm
@GR: Interesting discussion. The way I see it, there is difference between being right and being listened to. The two things are completely uncorrelated, except that those organizations/countries who listen to those who are right will win out in the long run from those that don’t. In the short time scale, you can ignore people who are right, but you can’t continue to do so forever because eventually the SHTF.
December 14th, 2009 at 11:36 pm
The following is a letter I originally sent to Bill Siksay in July. I never received a response as Bill forwarded it onto Peter Julian, so I have resent this to Peter.
Peter Julian MP,
I have some concerns over the governments willingness and in some cases its outright encouragement to put its citizens further into a hole many will never dig their way out of.
After several years of unprecedented “appreciation” in real estate, housing is unaffordable to to the vast majority of the population in much of Canada. In the major centers of British Columbia, only the very upper level income earning families can afford to own a home and have a decent quality of life as well. For some reason, a large swath of the population, including most in government, see this as a badge of honor and have taken drastic steps to defend the high prices and keep them from falling to an affordable level. Increasing amortizations to 40 years (now 35), decreasing down payments to 0% (now 5%) and giving tax credits has propped up a bubble that would have imploded without government manipulation years ago. High prices may be a boon for those who bought low and sell high, but over a longer period of time they only benefit the banks. This is because as original (pre-bubble) owners sell off due to retirement or death, a larger and larger portion of the population continues on these never ending mortgages eating up a greater and greater percentage of the aggregate populations income.
I am sure the banks are more than happy to lend any amount into this environment as the CMHC (A crown corporation) has basically removed all risk from the banks by insuring these mortgages, which are subprime by definition in this artificially low interest rate environment. This is because the borrower is qualified based on a very low rate and would be unable to afford the mortgage on a rate increase. This is known at the time of issuance but done anyway.
For example:
A family making $60k a year could qualify today for $352k mortgage and with 5% down a $370k house. After 5 years they have paid $1390 per month and the remaining loan is $322k, but interest rates are now 7% (still historically low). The new payment is $2100, and they cannot afford this. What happens?
I would like answers to the following five questions:
Why is my government supporting the central bank keeping rates artificially low and encouraging Canadians to go further and further into debt for basic necessities (shelter) when by all historical standards it is drastically overpriced and headed for a crash like all other areas in the world? It is not different here, because math is universal. It doesn’t matter how strong the banks are, its the people who have to pay.
Why is my government allowing a crown corporation to transfer the risks of imprudent lending from the lender to the taxpayer? If CMHC was not insuring these mortgages, the banks would not make them due to the risks. Even with their own economists predicting 20% drops in prices, they continued lending in earnest at 5% down. Does this seem like a prudent thing to do? Only if the government has your back.
Will my government consider not allowing qualification based on a interest rate snapshot and instead use either an average, rolling average of at the very least a forward looking long term rate estimate?
Will my government consider increasing the down payment requirements on low down payment mortgages, to ensure potential homeowners have proven their ability to save over a period of time and at least appear responsible?
Does my government truly believe that high housing prices are good for the long term fiscal health of Canadians, and if so why? Have they considered that a greater and greater percentage of their citizens hard earned dollars being siphoned into the coffers of bank investors may be bad for long term economic health?
I understand that we are in a recession, and it is well deserved as we lived beyond our means for far to long. Encouraging more debt is not the answer. Please bring these questions up in the house and get some answers. This is the most important question for a generation of Canadians as it is the difference between debt slavery and a semblance of life balance.
Sincerely,
Name Removed
Burnaby
December 15th, 2009 at 12:22 am
As someone who has done letter writing in the past, I thought I’d mention that indeed, personal and mailed letters are better, but that you can expect a response to be anything from a month to an entire year later. Longer for cabinet ministers. (And sadly, the response will have zip to do with what you wrote, usually being sort of canned party level adverts in that vein.)
However, letters DO matter, even more than opinion polls.
December 15th, 2009 at 3:31 am
The smoke and mirrors campaign by the government to misdirect the populations attention away from price inflation to real estate appreciation is obviously working.
What do people react to first, the good news on the latest rise in values or the fact that the cost of everything else is also going up so fast that the increase is meaningless?
http://www.bloomberg.com/apps/.....mWH3QNomt0
Why do you accept that food costs are doubling every year but feel snug as a bug when real estate values are going up 10 to 15%?
I can’t help but conclude that the CDN population has been adversley affected by a ‘stupid drug’ put into the water supply. Otherwise none of this makes any sense.
December 15th, 2009 at 5:29 am
@other ted:
Does that sentence make any logical sense at all?
Doesn’t it follow both from reason and from evidence that those who wanted a housing bubble and had the power to enable one (Bush, Greenspan, Bernanke, et al) would deny that one existed, and attack those who claimed there was one?
Bernanke: There’s No Housing Bubble to Go Bust (2005)
How come nobody was claiming in 2005 that Krugman had previously advocated the bubble? Think that one over.
Could you do a bit better please. And try including some citations.
December 15th, 2009 at 6:56 am
http://www.theglobeandmail.com.....le1400535/
December 15th, 2009 at 7:20 am
@Anonymous:
Great link, anon, you beat me to it. But look at the typical response from the bubble denier:
WRONG. All housing busts, everywhere, have the same root cause – prices out of proportion with rents and incomes. There may be different reasons for this in different places, but how prices got to be too high is irrelevant. What matters is that they are too high.
And lending for more than the fundamental value of a property – the value based on rental income – is unsound and high risk no matter what label you give it. Lending in Vancouver is every bit as unsound as in the bubbliest markets in the US.
December 15th, 2009 at 9:19 am
I have to say it’s a bit weird reading all of the MSM bubble warnings as of late.
Yet it seems that the lazy reporters just handing in press releases haven’t
got the message yet.
http://www.vancouversun.com/bu.....story.html
December 15th, 2009 at 9:53 am
There have been numerous occasions when it was asked what happens if your mortgage goes underwater (house value less than loan value). Typically, the official line from banks is that as long as you can still make payments there should be no problem. There is an interesting article calculated risk
http://www.calculatedriskblog......ed+Risk%29
and mish Underwater, Securitized, and Screwed by the “Pass the Trash” Strategy
about the things that happening in the us (where we have a real world example in recent memory as a reference point). It seems securitization causes problems for refinancing underwater mortgages.
December 15th, 2009 at 9:57 am
@richasian:
“Just keep making up stories to make yourself feel better bear. It’s ok that you’re a loser. Not everyone can be a winner by definition. ”
Now that’s what I call: ‘In Denial’!
My landlord had a $2M mortgage on a $2.5M west side house that I rent for $1500/Month. Do the math.
December 15th, 2009 at 10:25 am
This was a good thing… Well done. I’ve already gathered my ideas to send an email for him
December 15th, 2009 at 10:40 am
#53 @D. Bone: That’s so outrageous I can’t believe it. Those numbers aren’t credible, whether they’re true or not.
December 15th, 2009 at 10:49 am
@rp:
It’s true!
And it’s more credible than you think. Somebody on this site just last week (or was it the week before) posted a link to a MLS listing for a $2.5M west side house for sale that was currently rented at $1800/month. There’s plenty of west side ‘millionaire homes’ that are rented for between $1500 and $2000 per month.
December 15th, 2009 at 11:43 am
@observer:
That’s true here, because if the mortgage is insured (virtually all bubble purchases AFAIK) the taxpayers are holding the bag and the bank doesn’t care if the property is underwater.
The big problem is not going to be willingness of the banks to renew, but the ability (and willingness) of the homedebtor to handle the huge increase in payments once interest rates return to normal, as they inevitably will.
The mortgage securitization and insurance regime during the US bubble was completely different from what we have here, although it looks more like it now due to the federal takeover of Fannie/Freddie and the exit of private capital from the mortgage market.
December 15th, 2009 at 9:25 pm
Record profits from record securitization all 100% backed by the CDN taxpayer. Bank’s shareholders cash in and all the downside is socialized.
http://www.cmhc-schl.gc.ca/en/.....nglish.pdf
http://www.cmhc-schl.gc.ca/en/.....nglish.pdf
December 21st, 2009 at 12:24 pm
Seems to me like the Feds are attempting to take some heat out of the market without a vote-losing ‘pop’:
http://ca.news.yahoo.com/s/reu....._mortgages
December 28th, 2009 at 11:41 am
I recently came across an apparently little known method of getting the governments attention. I don’t know if it has a history of being effective.
How to Petition Parliament from http://www.inkymark.com/site/node/36
“The petition must contain a request, called a “prayer”, for Parliament to take some action (or refrain from taking some action) to remedy a grievance.”
It needs 25 signatures, and can be sent to any MP, not just your own. However, MP’s are not required to present the petition, so one might be best served to find one sympathetic to the cause.
“Members of the public who wish to petition the House of Commons on a matter of public interest are advised to first submit a draft petition (without signatures) to a Member of Parliament to see whether it is correctly worded and whether the Member would agree to present it.”