Author Archives: Robb Nelson

Trudeau just getting started in bid to ease housing fever

by Bloomberg 12 Apr 2021

by Ari Altstedter

Almost as soon as it was announced, the Canadian government’s first attempt to rein in the country’s pandemic housing boom was dismissed as not enough.

Canada’s banking regulator signalled its intent Thursday to take a small step by tightening qualification rules for uninsured mortgages, worried that low interest rates will put new home buyers too far into debt. The move will effectively reduce by about 4% the size of mortgages households will be eligible to take.

With buyers straining ever more to get in amid the frenzy, expectations are building that move will be only the first step in Prime Minister Justin Trudeau’s efforts to keep a long-feared housing bubble from forming, and popping, on his watch. To do so, his government must bring the one part of the economy that’s at a boil down to a simmer, without triggering a sharp correction that could disrupt the nation’s recovery from COVID-19.

Driven by record low interest rates and induced demand for larger space, the value of Canadian residential real estate has surged 17% in the last 12 months. Finance Minister Chrystia Freeland said she’d be watching the regulator’s move closely “to inform potential steps the government may take” on housing.

“You need something to cool the jets of the market because this thing is just going too

high too fast, and that could potentially leave people out to dry,” Rob McLister, the mortgage editor at financial-services aggregator and marketplace Rates.ca, said by phone. “There’s just all sorts of things that could potentially go wrong when home prices are going vertical.”

Psychologically Insufficient

The midday announcement by the Office of the Superintendent of Financial Institutions kicked off a consultative period before the stress test rate climbs to 5.25%, from 4.79% currently, on June 1. Several of the bank economists who have been some of the loudest voices calling for the government to cool the housing market immediately said more was needed.

“The tone and the psychology of the market might not change all that much,” Robert Kavcic of Bank of Montreal said in a report to investors, estimating the buying power of a CA$1 million mortgage would probably shrink by just CA$45,000 under the new rule. “We doubt this alone will significantly cool the housing market,” economists from National Bank of Canada chimed in.

Because newly common remote-work policies are allowing high earners in big cities to look further afield for their dream home, the bidding wars and affordability issues long seen in Toronto, Vancouver and Montreal are being exported to communities across the country. Twelve major markets — or about one quarter of the total — have posted price gains of more than 30%, according to data from the Canadian Real Estate Association.

That’s fuelling concern that prices could end up falling as fast as they’ve risen, destabilizing the broader economy, or leave those who don’t already own property with no hope of ever getting into the market. With the Bank of Canada signalling interest rates will remain low for a long while yet, that leaves Trudeau’s government holding more limited tools to tackle housing.

The most obvious next step would be to carry the banking regulator’s more stringent proposed stress test for uninsured mortgages over to the ones insured by the government, where the borrower has to put less money down.

“I would be surprised if Freeland didn’t do something similar on the insured product,” Derek Holt, an economist at the Bank of Nova Scotia, said by email. “I wouldn’t get the logic behind tightening stress tests on lower ratio mortgages when the strains are more likely on the high ratio end of the spectrum.”

Capital-Gains Exemption

Other policy options that have been proposed by economists outside government include a tax targeting speculative activity like the one recently introduced in New Zealand, and an end to the exemption from capital gains taxes for primary residences.

Though the Trudeau government hasn’t indicated it’s considering these, it did say in November that it plans to put a levy on non-resident home buyers. Similar taxes implemented to combat more localized surges in home values in Vancouver and Toronto, along with an earlier round of stricter mortgage stress tests implemented nationally in 2018, did help to rein in surging house prices in those cities for a time. But the tightening of the stress test then was about four times as steep as the one currently proposed, according to Bank of Montreal research.

The chief banking regulator, Jeremy Rudin, also indicated in a media call that his agency would be monitoring lenders to ensure strict adherence to income verification protocols, and to make sure they aren’t extending amortization periods or increasing debt servicing limits for borrowers.

For many of Canada’s large banks and others involved in the real estate market, such steps to tamp down demand miss the root of the problem, which is a lack of homes people want to buy.

“We need more stock, consumer preferences are changing,” David McKay, chief executive officer of Royal Bank of Canada, told reporters after the bank’s annual general meeting. “Some action will be necessary to cool this in the short term, but it’s modest and we don’t need to overreact to this. We can tweak some of our policies, try to slow down demand while supply catches up.”

–With assistance from Shelly Hagan, Kevin Orland, Erik Hertzberg and Theophilos Argitis.

Copyright Bloomberg News

ClearPro aims to build consumer trust and fight fraud within the mortgage industry

From Equifax Canada – Newsroom

Honesty is the best policy when it comes to a home purchase, a message that appears to be getting through to most Canadians, according to a recent Equifax survey on mortgage fraud. Less than half (45 per cent) of survey respondents, however, trust their broker to complete necessary forms on their behalf, 29 per cent admit they don’t know if they should.

Fraud within the mortgage industry has damaged brand equity, company reputations and impacted customers’ trust in recent years. To stem these recent developments, Equifax is launching a new professional background screening tool called ClearPro™ to help mortgage brokers, principal brokers, and broker owners identify fraudulent activity and patterns within their businesses.

“Leaders in the mortgage industry need to be a trusted choice with consumers,” said Carl Davies, Head of Fraud & Identity at Equifax Canada. “In today’s digital world, if an agent or broker who represents you commits fraud, the reputational cost is incalculable. Trust is broken. ClearPro is a sophisticated always-on background screening tool that can help maintain consumer trust in the mortgage process and help to reduce costs associated with fraud.”

ClearPro does this by checking multiple data sources to confirm three important indicators:

  • Credit File Database. ClearPro accesses Equifax’s robust data assets, including our proprietary credit file database, to check for anomalies in an individual’s financial and credit history. 
  • Identity. ClearPro is an identity proofing solution that cross checks input information against Equifax data assets to identify and confirm any misuse of name, address, phone numbers by an agent or broker.
  • History. ClearPro searches current and historical negative media, both international and domestic publication, and sanctions lists, including international and government agencies. If a match is found to an employee, agent or representative, it is validated and confirmed.


“The decision on how to proceed with a flagged individual is up to the organization,” added Davies. “Our aim is to root out bad actors, which will in turn establish credibility and confidence, building trust with customers. Mortgage fraud must be taken more seriously.”

Mortgage fraud is defined as when someone – a consumer, a mortgage broker or agent, a real estate agent or a lawyer – misrepresents, lies or exaggerates information to obtain a mortgage that would not have been granted if the truth had been told. 

ClearPro is an example of how Equifax helps Canadian businesses and their customers live their financial best.

Fostering trust and educating consumers 

Additional survey results also revealed a need for the mortgage industry to engage in consumer education with respect to mortgage fraud:

  • 76 per cent say lenders should be doing more to protect them from fraud and identity theft
  • When asked if it’s acceptable to inflate your annual income when applying for a mortgage 16 per cent of millennials and 9 per cent of the general population said yes, a significant drop from 23 per cent of millennials and 12 per cent of the general population in 2019.
  • Four-in-ten agree mortgage fraud is more of a risk to the lender, but they’ll end up paying for it with higher interest rates (44 per cent) and mortgage fraud is a growing problem (40 per cent)
  • 40 per cent have concerns that their mortgage information could be used by an identity thief to take out a loan under their name
  • 14 per cent of millennials surveyed indicated they had not been entirely truthful on a credit or loan application vs. 7 per cent as a national average
  • 11 per cent say mortgage fraud is a victimless crime (a legal offense to which all parties consent and no party is injured); that number was higher among millennials surveyed at 16 per cent
  • 9 per cent admit they haven’t been entirely truthful on a loan application 

Equifax surveyed 1,540 Canadians ages 18-65, Feb. 5-7. A probability sample of the
same size would yield a margin of error of +/- 2.5%, 19 times out of 20. 

Equifax reveals what’s happening with consumer debt in Canada

By Ephraim Vecina, Mortgage Broker News Canada

While Canada’s overall consumer debt climbed to $2.07 trillion in Q4 2020 (up 4.1% annually) due to increased mortgage activity, per capita consumer debt actually declined amid reduced spending activity, according to Equifax.

The average consumer debt, excluding mortgages, fell by 3% year over year to end up at $23,043, “primarily due to credit card balance which has been gradually declining since March last year.”

Aside from lockdowns and business closures imposing hard limits on spending, consumers have also paid down more of their balance on a monthly basis.

Click here to continue reading on Mortgage Broker News.ca: Equifax reveals what’s happening with consumer debt in Canada (mortgagebrokernews.ca)

Bank of Canada posts first-ever monthly decline in mortgage bond holdings

by Ephraim Vecina, Mortgage Broker News

Amid its ongoing commitment to maintain its quantitative easing program, the Bank of Canada has reported its first ever monthly decline in the amount of Canada Mortgage Bonds (CMBs) held by the institution.

The central bank’s data showed that it held $9.66 billion in CMBs at the end of December, falling by 0.65% from November levels. While the decline is historic in a literal sense, the annual increase in CMB holdings last year was an astounding 1,803.13%, fuelled by the unprecedented measures that the bank implemented in response to the COVID-19 outbreak.

“The bank is maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week,” the BoC said early last month.

Better Dwelling analysis of the BoC numbers pointed to a significant contributor of risk in the long term: the central bank overestimating the impact of the pandemic, resulting in the inexorable growth in home prices and sales activity seen during much of last year.

“When they set out to flood the mortgage system, they were expecting a doomsday scenario,” Better Dwelling said, adding that the excess capital “can potentially contribute to higher mortgage rates down the road.”

The central bank has also warned of the more immediate threat posed by the ongoing second wave of COVID-19 infections.

“Canada’s economy had strong momentum through to late 2020, but the resurgence of cases and the reintroduction of lockdown measures are a serious setback,” the BoC said recently. “Growth in the first quarter of 2021 is now expected to be negative.

The bank has so far stood by the overnight rate’s current record lows, saying that the effective lower bound will be in place “until economic slack is absorbed so that the 2% inflation target is sustainably achieved.”