Big banks are abusing their power

Big banks are abusing their power

Big banks are abusing their power

One leading broker is echoing Jim Flaherty’s concerns about bank irresponsibility, following BMO’s announced 2.99 rate on a 5-year-fixed mortgage Saturday, cautioning an abuse of the public trust.

“When the big banks start abusing their power by lowering interest rates like this, it is not in line with the responsibility that has been afforded them by the federal government,” says Calum Ross, Verico Calum Ross Mortgage.
 
BMO lowered its 5-year fixed mortgage rate from 3.09 to 2.99 per cent – a similar move made by the major lender back in January of 2011. The then record-setting low rate precipitated comparable rate changes throughout the lending channel, spurring Finance Minister Jim Flaherty to change the qualifying mortgage rules to answer concerns that Canadians were taking on too much debt.
 
Flaherty warned banks not to engage in a “race to the bottom” practice of rate cutting as the spring home buying season kicks into gear – urging prudence so as to avoid the type of mortgage crisis that decimated the U.S. housing market.
 
However, Ross told MortgageBrokerNews.ca that he would be “extremely surprised” if there were any new rules introduced by Ottawa in the mortgage sector, and that the changes made last June are just now having an impact on the market now, making any further toughening of the mortgage regulations unwarranted.
 
“The rule changes seem to be working,” he said, referencing the reduced maximum amortization for government-insured mortgages from 30 years to 25, and reduced equity that can be borrowed against a home from 85 per cent to 80 per cent.
 
In addition, BMO’s 2.99 rate is far from the lowest today, easily beaten by any number of 5-year-fixed rates offered on such websites as RateHub.
10 Comments
  • Ron Butler 2013-03-06 4:33:02 AM
    So let me try to understand this concept "its bad for banks to lower interest rates on mortgages". Okay, well, actually I am fine with banks lowering rates on mortgages.

    The US credit crisis was a failure of underwriting and product design (ARM teaser rates) which we do not have in Canada.

    While I believe Canadian real estate is over priced I think eventually interest rates will rise and there may be a correction on the value side. But the fact that banks wish to compete and provide lower rates to consumers should not cause dismay.
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  • Kiah Grant 2013-03-06 4:47:59 AM
    Why are the banks the bad guys when you can walk into a car dealership and get zero percent financing and not even have to prove you have a job? Or rack up a credit card and have to pay 28% interest? Perhaps Falherty should turn his curmudgeon eye to the real debt problem which is easy and costly consumer credit and leave first time home buyers alone. Brokers that say low rates are bad for consumers are wrong, these are 5 year fixed rates not variable rates where the borrower is at risk, also the 10 bps is not going to have a dramatic enough affect on the market to cause a collapse later on, the damage form lax rules leading up to this point is the real danger and tightening has been put in place to deal with it.
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  • Omer Quenneville 2013-03-06 5:09:09 AM
    So what’s the problem? 2.99 is not the lowest 5 year rate available and the terms on that "no frills mortgage" are deadly. This is an opportunity to educate clients to focus on the other terms not just on one tenth of one percent. Mortgage brokers always have the upper hand when it comes to lending, we just seem to have a hard time getting that message out. A well organized marketing/advertising plan we do us all well.
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