• Steven Ross posted an update 1 year, 11 months ago

    #chmc – The Liberals need to get this right. The fact of the matter is that the CMHC allows people to over- leverage. Full Stop. That is its mandate. It allows for mortgages that would normally not be written. It is shocking to say this, but if you have CMHC mortgage, you probably should not be living where you are living right now. Therefore, privatization is an option, but reform either way is mandatory. Canadians are fooling themselves if they don’t think it is our Fannie Mae or Freddie Mac. This is not an issue we can be a reverse parrot on to Flaherty.

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    • Given the experiences of the US and British market, we should be VERY wary of private insurance to replace CMHC. I agree that CMHC is the equivalent of Fanny Mae and Freddy Mac, but not the equivalent of sub-prime mortgage brokers.

      I personally think that CMHC is valuable to keep in Government hands. CMHC mortgages are much more expensive for the home owner than when they can go through the banks due to the additional risk. During these low interest rate times, there is just too much risk of abuse of mortgage insurance as we saw during sub-prime.

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      • Hugh: I am more impressed with your points than Steven’s but he does have two good points and a loser in the ”privatizing” suggestion. If not privatized, CMHC is a policy lever. Perhaps we can get more bang for our buck if we review and update its mandate and assure its modus operandi is consistent. It can certainly not become a sub prime broker. Governments (apparently) also have monetary policies which reflect on affordability, incomes and economic growth. Why would privateers be able to render the whole thing ”congruent” more so than governments? Regulation worked and deregulation did not. The incongruence that exists now and strikes fear in the heart of Mr. Carney, would probably not exist in a more pragmatic administration.

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      • Let me know it I am wrong, but wasn’t CMHC the way government used taxpayers as guarantors in risky mortgages with the thought to help first buyers get a little help? The problems I see with it is that banks and lenders starting using it to accept high risk loans, knowing they had nothing to loose, moving all the risk to taxpayers.

        Then as was said here, the easy money was then a net problem as housing, construction costs, and indeed everything that goes into a house was inflated by greed because of easy money, and low risk to banks.

        Mortgage insurance is there in many forms, only the taxpayer backed CMHC is cheaper. Having CMHC and a taxpayer backed insurance is not likely the problem, the problem may be the amount of down payment and criteria has been degraded to the point where a realistic interest will create serious problems in Canada soon. Best to put the banks more on the hook for defaults so that they will do a better job of making sure the loan is safe. A reasonable premium on mortgage insurance makes it easier for beginners to afford a mortgage, but should not be used to allow higher risk mortgages because taxpayers are on the hook for defaults.

        Of course the government did the reverse to try to stimulate the economy in the short term, and have caused some short term gain for some long term pain. With low interest rates and easing of qualifications for loans in general they have put Canada at risk. Is there any way out of this now except for high inflation? I can see how high inflation will benefit the ones with cash and savings as interest rates rise, and will help mortgage holders who now can pay back loans with cheaper dollars and higher income or should I say with cheaper dollars?

        No one wants to admit that inflation and printing of money is the solution, mostly because, those that have lent the money do not want to accept that they will be paid back with money of lesser value. Inflation is not a problem for people who owe a lot money, but for those who have a lot of money they have invested in others to make profits.

        There was nothing wrong with CMHC, only the way it was allowed to be used. It created inflation that the government denied was inflation so that our real 10% inflation rate is called only 2 %, and thus our income increases were kept at 2%. We would be fine if our incomes had kept up with inflation. All this other tinkering is just flack to take our minds of the real solutions.

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    • The current mortgage delinquency rate in Canada is about .3%, which is well within the comfort zone for lenders and insurers.

      If you would have a young family try to save $60,000+ to buy a house without mortgage insurance, you probably would be happier with the Libertarian Party.

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    • CHMC was never a problem until the Conservatives changed the rules.
      They raised amortizations to 40 years with no money down. Raised the amount that CHMC would lend out up to a million. They stoked the real estate market to make themselves seem like good economic managers. Now for the past few years they back tracked and started warning about high household debt and the possibility of higher interest rates. Now amortizations are back to 25 years, no cash back mortgages with a mandatory 5% down, that’s exactly where we were before they started changing it.

      Again CHMC wasn’t a problem until they goosed the market. Now house prices are so high even with a median income can’t afford to buy. Now everyone has tapped into their equity to get their wildest dreams because they made it seem that you couldn’t possibly lose in real estate. Prices just continue to go up 5% a year or more. They gave people a false sense of security so household debt increased. There was never a problem with CHMC until the Conservatives started goosing the market!!! I can’t say this enough.

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      • Very well said Darlene. Great posts.

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      • Very well presented fact-based argument, Darlene. I hope u continue to join the conversations on these and other topics. We need ur wise perspective to improve our understanding of the context of these issues. Thanks again.

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        • These have been good comments. I suggest that this type of insurance remain public, but that all parameters ot the regulations change. Allowing only 5% down is a major contributor to the bubble. I know people will complain that it helps keep housing affordable but that is a credit card solution to a real problem – it is just kicking the can down the road. If the requirement goes back to 10%, the market will self correct in the fullness of time and houses will become more affordable. Liberals need to be the party that makes the tough decisions through careful study and implementation of evidence-based solutions. Same with reducing the max amortization period. In my experience, I have seem some pretty questionable mortgage loans based upon some pretty questionable covenants based. It is true the default rates are low, but if interest rates go up even modestly, it won’t matter how safe we think our banks are because defaults will go up exponentially. That goes back to my initial comment that CMHC is the Canadian version of Fannie Mae and Freddie Mac, albeit with some points of differentiation.

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          • Steve, I know most people favor having higher down payments, but if you look at the stats in the last 15 years they show that most people at the median income have had very little upward momentum in their earnings, causing savings rates to drop and debt to disposable incomes increase.

            For me I don’t have a problem with 5% down. It was available in the 90’s and it sure didn’t make houses skyrocket in price, but they sure started to go up once mortgage interest rates dropped. So blame the cheap rates that made affordability to increase. Everybody and their brother was buying in because of historically low interest rates.

            Then the Conservatives tossed fuel on the fire by changing amortization rates. I can’t blame them for interest rates, it was a global thing. But I sure blame them for screwing with the amortizations.

            For example take the price of a $350 000 home with 5% down at 3.5 % interest rate and change the amortizations and see how that effects monthly payments. Using the handy mortgage calculators on line I got these numbers:

            40 year $1283.05 monthly
            35 $1369.34
            30 $1488.40
            25 $1660.08

            So as you can see amortization rates make a hell of a difference to a monthly payment. That’s $377.03 a month difference, that’s a car payment that you could make instead or a much bigger and better house.

            So between historically low interest rates and longer amortizations were the reason house prices rebounded so fast after the financial crisis. Add to that the Conservatives reducing lending standards and buying up mortgages from the banks to keep credit flowing. That’s why we’re in the mess in now. And now the Conservatives are talking about privatizing CHMC trying to get rid of the problem they created.

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        • Thanks David for your kind words.

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    • John. the Liberals started a pilot project in the 90’s for 5% down. In 2003 they brought in 5% down permanently. The part about not having a limit on purchases was also done in 2003, but at that time house prices were not astronomical as they are today and there were stricter lending criteria that had to be met.

      The Conservatives deregulated the market and opened it up to other insurers when they implemented the 0% down 40 year mortgage. When this program was started it was at the time when the Liberals were in opposition. In the financial crisis the Conservatives again reduces lending standards and injected a whole bunch of money on the premise of keeping credit flowing.

      It’s my belief that shortly after the 0/40 was implemented with lax lending standards that home ownership which was pretty stable at that point shot up to the 70% that it is now and so did household debt. It’s because of the Conservatives recklessness that we are where we are today.

      This whole getting rid of CHMC is the same shit like they pulled on the Census. Create a problem that doesn’t exist so they can pander to their Libertarian base and cut government programs that are beneficial to our society

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