According to a report in the Globe and Mail, next week’s highly anticipated federal budget should only contain “modest” spending reductions and little to no intervention in the housing market. Finance Minister Jim Flaherty delivered these and other comments outside of a volunteer firefighter station in Ottawa last Thursday. During the announcement, Mr. Flaherty stated that he would like to see if the market could “correct itself,” rather than force new regulations into place.
Flaherty’s response comes after Canadian banks requested Ottawa to institue mortgage insurance regulations in order to avoid what many are foreseeing as a major housing crash. The nation’s largest banks have been calling for the government to either lower the maximum amortization period for insured mortgages or raise the required minimum down payment amount for best rate mortgages.
CAAMP Key Issues Heard
Flaherty’s comments are inline with CAAMP’s recommendations to avoid dramatic changes to mortgage insurance regulations. Concerned about the cumulative impact on the real estate market, CAAMP released a list of key messages back in February that outlined a number of reasons why it would be detrimental to the housing industry to restrict access to best rate residential mortgages at the time.
In the report, CAAMP argues that further restrictions on access to best rate mortgages will impact the self-employed, new Canadians and first time home buyers – three significant mortgage markets, all of which fall outside of the sub-prime loan category that occurred in the United States.
Impeding the growth of the Canadian housing market, through the implementation of new mortgage policies, could add to unemployment and further depress the economy. Too many regulations could also impact the smaller mortgage lenders, resulting in less choice. Fewer lending sources creates less competition, which would inevitably lead to higher borrowing costs.
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New Data Recommends Staying the Course
Earlier this month, CAAMP released a revised key issues listing based on more recent data. In the report, CAAMP argues that Canadians have heeded the warnings put forth by both the Bank of Canada and the government in regards to unhealthy consumer debt loads. As such, the market continues to remain strong and that regulations should not be tampered with during this volatile time.
CAAMP still feels that instituting new mortgage insurance rules could precipitate a housing downturn – something that the federal government is trying to avoid. Instead of changes, CAAMP recommends instituting the following precautionary measures:
- Continue to monitor the housing market closely – take action only when the data requires it
- Maintain the current system as long as it continues to function – previous changes to mortgage insurance rules are working correctly (refinancing is down 40%)
- Make sure any recommended changes are balanced and properly targeted to the market segments where there is the most concern (rather than the self-employed, new comers and first-time buyer segments)
- Institute responsible lending practices
Based on data collected by CAAMP, Canada has a well-earned reputation for exercising economic prudence. As such, our housing market remains healthy, even amongst irregular activity. Our banks are stable and our economy, while impacted by the global recession, remains strong.
Rather than making drastic changes to mortgage protocol, CAAMP, along with Mr. Flaherty, recommend increased education on the topic of debt (mortgages, credit cards and lines of credit specifically) in order to correct the market and improve the nation’s economy.
The federal budget will be unveiled Thursday. Stay tuned to Mortgage Talk Canada for further details.