Category Archives: opinion

Mortgage brokers warn about new rules

Canadian mortgage brokers are freaking out about new refinancing rules proposed by the OSFI which has taken over responsibility for the CMHC. Reasonably enough, they’re asking for clarification about proposals to require banks to check income and current house value before refinancing.

Currently, when mortgages come up for renewal, banks tend to focus on the borrower’s payment history. They rarely appraise the property again and not all banks will check the borrower’s updated income level, Mr. Murphy said.

“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the industry association said in a submission to the Office of the Superintendent of Financial Institutions (OSFI).

“If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time and thereby driving down prices.”

Such a phenomenon could add further fuel to a real estate downturn if lower house prices and higher unemployment caused more people to lose their homes upon renewal, Mr. Murphy suggested.

Read the full article in the Globe and Mail.

Days of ultra-cheap money coming to an end

..At least that’s what Mark Carney and other Bank of Canada officials have said according to this article, yet they’re refraining from being more specific.

Meanwhile the Organization for Economic and Co-operative Development (OECD) is urging Canada to start raising interest rates in the fall and keep on raising them to stop an inflating housing bubble and reign in inflation.

The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.

That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. However, the OECD’s recommendation comes with a risk.

The Federal Reserve Board has made a conditional pledge to leave U.S. rates extremely low until the end of 2014. Following the OECD’s path could create an unprecedented spread between Canadian and U.S. interest rates, which would put upward pressure on a Canadian dollar that many say already is too strong.

Oh, and the OECD made this same recommendation a year ago and was ignored. So I wonder how Carney intends to bring the days of ultra-cheap money to an end?

The ‘secret’ Canadian bank bailout

You’ve probably noticed lots of eye rolling around here anytime someone mentions how Canadian banks are so different from US banks.  The Canadian Centre for Policy Alternatives is now pointing out in a report that Canadian banks actually received a multibillion dollar bailout from October 2008 to July 2010.  The government is being accused of offering ‘liquidity support’ that is much higher than originally reported.

All told, the study counts $114 billion worth of guarantees and financial aid for Canada’s big banks from government agencies such as the Bank of Canada and the Canada Mortgage and Housing Corp.

MacDonald combed through financial reports from government institutions as well as quarterly reports from the banks themselves.

He says the government has been obfuscating the true cost of supporting the banks.

“A healthy and resilient banking sector cannot operate under a shroud of secrecy. Details of the massive taxpayer support Canadian banks received should be released in the name of transparency and accountability,” MacDonald said.

They also point out that the heads of Canada’s big banks received large raises during the time this ‘liquidity support’ was offered.

Who to blame for housing bubble? Government.

So if there’s a housing bubble in Canada who is to blame? Some people blame foreign buyers, some people blame local buyers. Some people think sellers are to blame and some people think the government is to blame. From the National Post:

Many analysts are becoming increasingly concerned that some cities — notably Toronto, Vancouver and possibly Calgary — are in the midst of their own U.S.-style housing bubble. A document written by the country’s financial regulator and obtained earlier this year through an access to information request, expresses concern over the “emerging risk” of Canadian loans that “have some similarities to non-prime loans in the U.S. retail lending market.” Bank of Canada Governor Mark Carney continued tosound the alarm as well last week over the growing level of household debt, while maintaining the overnight lending rate at a near-record low level of 1%.

The question remains as to why prices in Toronto and Vancouver — where the economy is stagnant — are rising so fast, and not in cities like Edmonton and Saskatoon — where the economy, and population, is booming.

Read the rest of the article here.