Big banks are abusing their power

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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.
  • Ron Butler on 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.

  • Kiah Grant on 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.

  • Omer Quenneville on 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.

  • David Larock on 2013-03-06 5:15:31 AM

    Lenders should be allowed to determine mortgage rates, not the government. I gave Federal Finance Minister Flaherty full marks for his four rounds of mortgage rule changes but in all that he has done, I thought his one mistake was commenting on what the five-year fixed rate should be. As for the 2.99% five-year fixed rate … yawn … any broker worth their salt has been below that rate for some time now.

  • John Hamilton on 2013-03-06 5:23:04 AM

    Ron needs to learn the true reason for the credit crisis. Had nothing to do with mortgages at the retail level at all. Was the sale of bulk grouping sold as risk tolerant when it was not. A little 400k mortgage does not affect a world economy. As well if BMO wants to make this their way to compete good for them. I welcome the opportunity to compete with the rates I can get the client on a better product.

  • Joe the Broker on 2013-03-06 10:00:14 AM

    Bond markets determine fixed rates, maybe the government should go bug those guys instead.

  • Ron Butler on 2013-03-06 10:55:38 AM

    Actually John, the US credit crisis had everything to do with retail mortgages, self declared income liar loans, zero down purchases to 525 FICO scores, 125% LTV refinances, appraisals by the broker's bother-in-law. Simple logic would tell you if the mortgages did not go south the crisis would never have happened. I have a total understanding of how the CDOs were built, how the Ratings Agencies gamed the system, why the swaps failed. I understand every tiny thing about it and it all boiled down to product design, insane underwriting standards and failed lending practises. The fact that the securitization was a lie was just an outgrowth of the lending system.

  • @John / Ron on 2013-03-07 1:39:43 AM

    You guys are arguing about the same thing. Ron's description is quite correct, as it was those mtg's that were then sold out the back door in bulk as described by John. That aside - the REAL problem - the ROOT of the problem - was stupid Left Wing Socialists that want to "level the playing field". Clinton brought teeth to legislation previously written by Carter that would see bankers face criminal charges if they didn't do something to help the poor buy homes (share in the dream). That's what kicked it off, and it got out of hand and took on a life of it's own. People don't understand how dangerous certain Lefty phrases are: "level the playing field", "the most vulnerable", "historically disavantaged", "social justice", "restorative justice" etc etc. You hear a politician use these words - SHOOT EM!! (ok don't shoot them, it's illegal - but run like hell!!)

  • Derek Rowley on 2013-03-07 5:46:26 AM

    Sometimes when I read all these comments, I almost believe that I am watching the Jerry Springer show. No difference really. Just a big pool of frenzy.

  • Omer Quenneville on 2013-03-09 4:22:12 AM

    AS mortgage brokers, we don’t create the market, we work within it. This spin that BMO has launched if explained to the average Joe would have little or no effect. If we did our own spin, it would send clients running to us. What we need as an industry is a voice. Where is our press release explaining that this is not an exceptionally low rate or that this is a no frills mortgage and what that means? In regards to Jerry Springer, at least we had a face with that show.

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