Finance Minister Jim Flaherty’s announcement today of new mortgage regulations is simply a continuation of his attempts to fix the mistakes he made by opening up the Canadian mortgage market to riskier American mortgage practices in 2006, said Liberal Finance Critic John McCallum.
“It’s this Minister who put us on a reckless path in the first place,” said Mr. McCallum. “Forty-year mortgages with no down-payment requirements are a recipe for financial disaster for many Canadians. Fully half of the mortgages taken out in the first half of 2008 were for 40 years.
“Mr. Flaherty put us at risk of being overleveraged and exposed Canadians to the lending practices in the U.S. that led to the complete breakdown of their economy. The only thing he is doing with this announcement today is attempting to correct his own mistakes,” said Mr. McCallum.
It was in May 2006 that Mr. Flaherty, in talking about the opening up of the Canadian mortgage market to the same U.S. mortgage insurers that sparked the recession, said the following: “On mortgage insurance, we believe in competition. We think that the provisions in Bill C-13 will increase competition in this area, that it is adequately regulated, and that more competition is good for this part of our economy.” (Hansard, Finance Committee, May 30, 2006)
He allowed the down-payment threshold to fall from 10 percent to zero, and allowed amortizations of 40 years. In 2008, he had to reverse himself, and lowered that to 35 years and five percent.
Mr. Flaherty’s contention that these new provisions were adequately regulated was contradicted by Mark Tonnesen, the former CEO of insurance company Triad Guarantee: “There was a lack of regulation around the expansion of increased risk.” (Globe and Mail, published December 13, 2008)
“Now that Mr. Flaherty has acknowledged that he should never have thrown open the doors to American style mortgages in 2006, it is crucial that he keep a very vigilant eye on the housing market,” said Mr. McCallum.
“After all, it is the value of many Canadians’ homes and significant amounts of their retirement nest eggs that hang in the balance because of the decisions he made four years ago.”
