A fine line in balancing the market

Last week we heard our Minister of Finance, Jim Flaherty say “It’s a bit odd that banks have asked the government to tighten mortgage regulations.”

Banks ultimately control who they lend to and shouldn’t require any babysitting. If they wanted to utilize the Mortgage Insurers programs to secure their mortgage portfolio – and they all do – then they must abide by the rules set out by the insurers (CMHC, Genworth and Canada Guaranty) otherwise they are on their own however they choose their clientele. However they have their own internal limits that they can use as well to tighten up their guidelines should they choose.

Flaherty also commented that we might not see further mortgage regulations in the near future even though he’s made significant changes over the last three and a half years.

“With respect to tightening up the mortgage insurance market we’ve done it three times, and we watch, we monitor and if we feel that we need to tighten we will. I find it a bit off that some of the bank executives are taking the position that the Minister of Finance or the government somehow tell them how to run their business,” Flaherty said last week.

From an executive’s stand point, the large banks in Canada are having a huge mortgage market share battle and are fighting to keep every customer that they can, some even going as far as marketing that they want to be your “friend”, because friends are more trustworthy and profitable. If one bank was to tighten its guidelines it would quickly lose market share, so a few are asking the government to do it so that they can protect their own.

He went on to say, “The new housing market produces a lot of jobs in Canada so there’s a balance that needs to be addressed. I’d like the market to correct itself, quite frankly, if it can.”

What he’s saying here is that we are walking a fine line with balancing the market. He knows that Canadians are very astute in paying their mortgages as our delinquency rates are extremely low but that our household debt levels have risen through the global recession. Canadians have been very fortunate that our economy has been one of the leading stories around the globe with regards to growth and banking restrictions that allowed us to mostly weather the storm that many countries have not been able to get under control.

From a mortgage broker’s viewpoint, and many industry leaders that I speak with say mortgages aren’t the root of the problem, it’s consumer credit such as credit cards and lines of credits that are stretched and causing people’s savings to wither as they consume in a confident market like Alberta and Saskatchewan, but still no mention of tightening from the government or rather, whining from the major banks to tighten those rules.

Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for appointments or questions at 403-343-1125 or jturcotte@regionalmortgage.ca.

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