Canada, CMHC, mortgage, opinion

Should banks take on more risk?

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There’s an article over at the CBC on the CMHC and CEO Evan Siddall.

Mr. Siddall is of the opinion that the CMHC should not be privatized as it acted as a ‘shock absorber’ during the last correction, but does think the banks should take on a share of the risk for insured mortgages.

“That ultimately will be a decision for government to make and we’re in the process of looking at different options that will take a few years to evaluate, but the idea is that people should have skin in the game,”

“In the insured mortgage businesses, the banks offload all that risk to the government through CMHC, The government’s interested in taking a reduced role in the housing market … so we’ll look at different ways to share risks with lenders.

What do you think, should the CMHC force banks to take on more responsibility for the insured loans they hand out or would the banks just use that as an excuse to charge more?

Read the full article here.

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patriotz
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“or would the banks just use that as an excuse to charge more?”

It’s not an “excuse”. Risk pricing is what credit markets do. More risk, higher rate.

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3 years 7 months ago
bullwhip29
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What the banks “should” do and what they will end up doing are two different things imho. Remember, the RE industry (esp in places like Toronto and Vanc) is everything. With an election just around the corner, you can bet your a$$es that many of these proposals are just hot air and that nothing of significance will actually materialize in the not too distant future. Being the cynic that I am, I wouldn’t be the least bit surprised if the opposite occurs and things are relaxed somewhat to give a softening market a much needed and very timely jolt. The govt’s backtracking on the IIP among other shenanigans overseas buyers are still conducting as so called officials turn a blind eye are proof that they don’t always mean what they say. While the CMHC and its new figure head may… Read more »
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3 years 7 months ago
southseacompany
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“Bank of Canada raises red flags over Toronto, Vancouver, Calgary housing markets ” Globe & Mail

http://www.theglobeandmail.com/report-on-business/top-business-stories/bank-of-canada-raises-red-flags-over-toronto-vancouver-calgary-housing-markets/article21218329/

“In its monetary policy report today, the central bank said housing markets in eastern Canada “appear to show signs consistent with a soft landing,” given slower price increases and sales volumes. But here’s the crucial line: “This contrasts with major cities in Ontario, Alberta and British Columbia, where housing markets are generally robust and much tighter.””

“Bank of Canada Governor Stephen Poloz and his colleagues did not say Toronto, Calgary and Vancouver were necessarily heading for a hard landing, but the distinction was noteworthy, nonetheless.”

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3 years 7 months ago
Westside Realtor
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Bifurcated market in Van now. Millenials buying condos along with speculators. Condo market is dead, in terms of price appreciation, but volumes go up with supply. For now. Supply will trump soon. Westside mkt for $3million plus is dead. Price reductions are hard to get from HAM clients, as they are “too proud” to drop their prices much less they lose face of something. Guess it’s human nature to always want to sell for the highest price – even if that ship has passes. I remember a friend saying he would wait to sell his notes shares when it got back to his previous highs. Well, you don’t need to sell to see the market grind lower and lower, you just need buyers to be fewer and poorer, which is what I see now. Price softness in my market continues… Read more »
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3 years 7 months ago
Garbage
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BoC said household debt is edging high, but risk of inflation is muted.

This is an awesome statement. It is kind of like someone is bleeding blood, but at least he is not gaining weight, reaching a desirable body weight (well at least for a moment).

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3 years 7 months ago
Www
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when will naive canadians wake up and realize that not everyone wants to be our friend?

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3 years 7 months ago
crabman
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Westside, you say the $3M+ market on the west side is dead. Can you give us some numbers? In Yaletown, there are 11 listings over $3M right now, and there have been 2 sales in the last month. MOI = 5.5 = not dead.

V1041001 sold on Oct 15 for $3.42M
V1079944 sold on Oct 21 for $3.32M

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3 years 7 months ago
Garbage
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crabman is silly. Westside 1 and crabman 0

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3 years 7 months ago
Westside Realtor
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Crabman,

5.5 months won’t drive prices higher. Flat at best.

Speculation has been such a big part of the market. Who is dumb enough to continue to speculate on cash flow negative (big time) properties that are AT BEST flat to down slightly (expecially after txn costs)…seems like a good way to separate fools from their money.

Your example is indicative of why I an so bearish.

Thanks for the stats, you must be a realtor (tongue in cheek).

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3 years 7 months ago
space889
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Look what happens when Picard didn’t take any chances? He was stuck as an ensign forever, rather than the great Captain he is.

So yes, banks should take more risks. After all, fortune favors the bold and Sisko didn’t win the Dominion War by playing it safe.

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3 years 7 months ago
patriotz
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@10: “So yes, banks should take more risks.”

As I said above, the business of banks is to take risks in lending. If there was no risk in lending you wouldn’t need banks.

Don’t think that the banks need or even want 100% GoC backing in mortgages. It just commoditizes them and reduces the banks to mortgage brokers, with very low margins. The beneficiaries are the RE industry, not the banks.

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3 years 7 months ago
Son of Ponzi
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#11
under Sharia Law, charging interest is unlawful.

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3 years 7 months ago
VanRant
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Through CMHC, all the banks made record profits by unloading the risk to the people of this country and inflating the massive bubble. Its about time they take back the risk. Try taking a business loan from the big banks where CMHC is not there to realize how much of a free ride they have.

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3 years 7 months ago
crabman
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Westside,

Most of us completely agree that the market is severely overpriced, which is why we aren’t investing in it right now. I can’t see how anyone in their right mind would accept a 3% cap rate on a condo.

But that wasn’t my point. My point is that the market is not weak. Please stop trying to convince people that it is. If I’m mistaken and you have data that proves it, please provide it.

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3 years 7 months ago
crabman
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And all this talk about offloading risk from CMHC to banks is complete BS. It reminds me of when Carney was “warning” Canadians about borrowing too much, while doing nothing to discourage yet more borrowing. IMO, it’s all about creating the impression they are on the job. The conservatives all across the English-speaking world have created an economy that increases corporate profits at the expense of the middle class. The only way to keep the economy going is to get households to borrow enough money to compensate for their falling wages. They know full well that when the borrowing stops, the economy will crash and stay weak for several years. That’s what happened in the US in 2007. It was starting to happen here in 2008-2009, but they pulled out all the stops and re-inflated the bursting bubble. Not a… Read more »
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3 years 7 months ago
Westside Realtor
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Crabman,

Good posts.

3% cap rate on a condo…take a guess what the cap rate is on a 2 or 3 or 5mm place. in other major cities in the world a $5mm place will rent out for $20k per month..what do you think the cap rate is here? I’ve rented a number of places (acted as agent) and cap rates are below 2%…who would accept that? yes, mania fueled buyers and offshore money (which is not as prevalent now), so I say the jig is up, simple as that.

Stats – I just look around my office and I know what is up, your official stats will reflect what I see with a lag, but come it shall.

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3 years 7 months ago
Many Franks
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Blithering at you vapidly from sometime in 2006, here comes Barbara Yaffe!

Barbara Yaffe: Vancouver’s real estate forecast to stay hot into next year, study finds

I won’t even bother quoting it, except to mention that it calls Vancouver a sure bet based on a robust local economy (hey, how about those natural gas revenues!) and tech sector (that dot-com thing everyone’s talking about!)

It has Vancouverites spending MORE THAN FIFTY PERCENT of household income on shelter. Sustainable!

And this: “Western Canada’s real-estate market will continue to be the most robust, with the region acting as ‘the country’s economic engine.'”

Troubled Canadian economy, worry not. Vancouver’s inventing wealth for all from thin air, 35 stories at a time!

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3 years 7 months ago
LS in Arbutus
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Of course the banks should have some skin in the game. I have noticed that when I get loans from a bank, without CMHC backing, they do a TON of due diligence.

Friends of mine however, with less than 20% down, not only have the banks not seem to be as diligent, they’ve received a marginally better interest rate than I did and this is when I put 30% down.

Definitely the banks seem to be much more careful when there is no CMHC insurance involved and that’s not right. They should be equally careful.

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3 years 7 months ago
Son of Ponzi
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#17

The report also notes that foreign buyers, mainly from Hong Kong and China, account for the purchase of about 40 per cent of the luxury homes and are “one of the key reasons Vancouver real estate prices continue to rise.”
——————-
That’s the only thing in the report that is factual.

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3 years 7 months ago
patriotz
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@19:”“one of the key reasons Vancouver real estate prices continue to rise.”

That’s not a fact, that’s a conclusion.

The % of homes purchased by foreign buyers is a fact, but I’ve yet to see hard evidence showing what it is.

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3 years 7 months ago
Oracle
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Fact:

If immigigration and temp immigration were reduced to a level that averages the G8 nations, then Vancouver housing would correct by about 30-40%.

That is a fact Patriotz.

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3 years 7 months ago
Softy
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“The % of homes purchased by foreign buyers is a fact, but I’ve yet to see hard evidence showing what it is.”

It’s not written down so it doesn’t exist.

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3 years 7 months ago
patriotz
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@21:”That is a fact”

That is a conjecture.

You’re obviously not a scientist, and I hope you’re not a lawyer. 🙂

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3 years 7 months ago
Son of Ponzi
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You’re obviously not a scientist, and I hope you’re not a lawyer
————
Or an Economist.

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3 years 7 months ago
oneangryslav2
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“Westside, you say the $3M+ market on the west side is dead. Can you give us some numbers? In Yaletown, there are 11 listings over $3M right now, and there have been 2 sales in the last month. MOI = 5.5 = not dead.”

That is such a small sample size, that it’s almost useless as an indicator of anything. Add or subtract just one sale and the MOI goes to 3.75, and 11, respectively.

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3 years 7 months ago