Big banks urge tighter mortgage rules
Nero pointed out this article in the Globe and Mail about the Big Six Canadian banks urging the government to tighten up mortgage rules to control runaway speculation in the Canadian real estate market. Just to be clear, these are the same banks that are making pretty much risk free income from these government insured mortgages. About 40% of their loan portfolio is Canadian mortgages. As Nero says:
In what world do the banks have to tell the government to rein in lending and squeeze profits?
The article points out that the banks aren’t so much concerned about people defaulting on their mortgages (the government owns that risk), what they’re really concerned about is mass foreclosures affecting peoples ability to pay off their credit card bills and other loans, since THOSE debts are not government insured.
So these are the big banks, why don’t they just tighten up their own lending standards? Patriotz summed the issue up nicely:
The banks are essentially facing a prisoner’s dilemma problem. They know that if the bubble continues, and collapses, they all will be worse off. But there is no incentive for any individual bank to restrict lending, because its competitors would just take the business, and thus that bank would end taking the biggest hit.
Also an agreement among the banks to restrict lending, even if it could be arrived at, could be viewed legally as a conspiracy in restraint of trade.
So the banks must appeal to a higher level to restrict lending to all of them equally.
So will Flaherty listen to the banks and tighten up mortgage lending standards and if so, what form will that take? One point to remember is that this issue is about a national housing bubble, and I don’t believe there’s another major market in Canada that is as detached from local incomes as Vancouver.
update: Patriotz points out that Flaherty has made his decision, and somewhat sensibly decided to stick with the ‘warn them mildly and let them dig their own grave’ approach.
“In terms of Canada, we’ve been watching and monitoring carefully and we continue to do that. There are certain tools available to the government if we choose to use some or all of them. As you know, we did so in 2008, and we’re continuing to watch. Right now, there is no compelling evidence of a housing bubble in Canada. There are some signals in the market that are concerning,”
Mark Carney of the Bank of Canada feels the same way:
RSS 2.0 comments feed. leave a response, or trackback from your own site.The central bank has no immediate worry about a housing bubble. However, Mr. Carney reiterated that households should be cautious about taking on home loans at current rates, which will inevitably rise.
“We’ve alerted to this issue, the broader issue of household debt,” Mr. Carney said. “We want to ensure people manage their affairs recognizing that the current situation with interest rates is extraordinary and extraordinary won’t persist.”
Both Mr. Carney and Mr. Flaherty have been urging consumers to act cautiously when buying homes for several months now.
February 9th, 2010 at 10:46 am
@Starving Artist:
I know what you were going for but “doth” is third person singular, “bulls do” in old English, “a bull doth“.
Now watch the slings and arrows of outrageous grammar hounds hit me from all angles for calling someone on old English grammar while messing up modern English.
February 9th, 2010 at 4:04 am
@arit:
Aside from the fact that it doesn’t work (at pointed out above), banks in Canada have no financial incentive to keep prices from falling, as CMHC is guaranteeing the principal. Their incentive is to foreclose and sell as quickly as possible, to get their money back. Any program to keep houses off the market would have to be paid for by CMHC, and that would ultimately jeopardize the Feds’ credit rating, as I have pointed out. And that truly would be the nightmare scenario.
Frankly I think the Cons are not going to go a damn thing about the bust, just as governments did not do a damn thing about the Ontario bust of the 90’s and the BC/Alberta bust of the 80’s – and for those who weren’t around for them, those were major upheavals. It’s politically and fiscally cheapest simply to deny there is a problem, as indeed they are already doing. Recall again that the Con’s support is based in rural areas which would be antagonized by efforts to bail out urban homedebtors. Also any bailout program would be seen in Quebec as punishing them for the sins of the Anglos, and the Cons learned an expensive lesson last election to tread lightly there.
All of the homedebtor “bailout” programs in the US are really to the benefit of the banks and the banks in Canada already have their bailout.
February 9th, 2010 at 1:21 am
Methinks the bulls doth protest too much.
February 9th, 2010 at 12:29 am
HOUSING STATS are moving up from the MIND BLOWING success of CANADIAN REAL ESTATE,Developers are in need of MORE shipments,MORE trucks to haul construction material.Oil prices start moving up to fuel the pick up of inflection point beyond January 2010.Gauge will be countinue in process to assist Vancouver Boom2.
February 9th, 2010 at 12:17 am
Some more about the fight between Realtors Inc. and the competition Bureau:
http://www.theglobeandmail.com.....le1460839/
Before the 2007 changes, some discount brokers offered to list homes on MLS for a fee, typically less than $700. The homeowner then handled the sale.
The CREA changes required all agents to inspect homes before listing them on the MLS and work with other agents throughout the sale. As a result, discount brokers say they could no longer offer their low-fee services and had to charge more to carry out the various CREA requirements.
Mr. Neil, for example, charges customers $299 to list their home on MLS, plus $79 for each week the house is listed. When the house is sold, he charges a fee of 0.25 per cent of the sale price. Mr. Neil said if the bureau wins its case, he would likely lower his fees and change his services.
“We would offer probably a sort of à la carte -type menu of services; if [customers] want them they can pay for them,” he said. He also believes several American online services would expand into Canada.
“The consumer demand is phenomenal for this service,” added Donald Hewie, a real-estate agent in Ottawa who has also been pushing for changes. “This could be the beginning of the end for CREA.”
Imagine:
Lower fees +
No CHMC =
——————–
Huge savings for consumers!
February 9th, 2010 at 12:05 am
“I have a hunch” that Van RE is fucked. According to Dave, this is now gospel.
February 9th, 2010 at 12:04 am
@Phil: There is no law that would force their hand either way. It’s up to them. Any type of answer would be pure conjecture.
February 8th, 2010 at 11:30 pm
Conservatives hold lead: poll
because vrengd.
February 8th, 2010 at 11:17 pm
If the fed budget introduced changes to mortgages, when would they be effective? Immediately?
February 8th, 2010 at 11:09 pm
@Dave:
“…is believed by some…”
Those are excellent weasel words. You might as well throw away the whole argument if your whole evidence lies in the belief of a few.
It’s believed by some that aliens landed at Roswell Dave. Utterly useless.
February 8th, 2010 at 10:48 pm
@ReductiMat:
Whistler is believed by some to be counter-cyclic. Sales have dropped due to the US recession and housing market. It’s neither good or bad that sales have been from Vancouver. I have a hunch that number will be dropping.