A surprising number of brokers are echoing the sentiments of a leading bank economist, suggesting the government would and should ratchet down mortgage rules yet again – but only if consumer debt levels creep back up and only if they’re phased in.
“I agree with RBC’s chief economist: If debt levels start increasing rapidly again, more changes to mortgage rules are inevitable,” David Larock, a mortgage agent with TMG The Mortgage Group in Toronto, told MortgageBrokerNews.ca. “The Bank of Canada won’t raise rates to slow borrowing if the broader economy still needs the stimulus – that could trigger a recession at the worst possible time. Instead, Finance Minister Flaherty will tighten mortgage rules to reduce the risk of a credit bubble. If that happens, though, my hope is that these changes will be phased in over time.”
The comments follow those of RBC Chief Economist Craig Wright, delivered last week as part of a panel discussion on the increasingly iffy Canadian economy. With interest rate hikes now on hold for the foreseeable future, the government may again move to tighten mortgage rules in order to further cool the housing market, he suggested.
“As we go forward in an environment of lower rates for longer, we may see another round of mortgage rule tightening,” Wright said, on the heels of the Central Bank’s move last week to keep its key lending rate unchanged at 1 per cent.
That holding pattern means Canadians are very likely to see more regulatory changes, specifically further reduction in the 30-year amortization cap and/or an increase in the amount of mortgage insurance.
Either change threatens to further slow business for mortgage professionals, already grappling to maintain, let alone grow, originations. Refinances have also fallen, with CMHC pointing to a 40 per cent decline in the second quarter.
“I don’t believe that they’re going to do another tightening of the rules,” said Mark Goode, a high volume broker with Mortgage Architects in Orillia, Ont. “It would slow down the market even slower, and that would be ill-advised.”
But Larock and a growing number of industry insiders suggest another government clamp down if required would work for the long-term sustainability of the industry.
“To date, every time the federal government has made mortgage changes, mortgage brokers have shouted their disapproval form the roof tops,” said Larock. “Unfortunately, I think our collective response to the mortgage rule changes to date has left us, mortgage brokers, looking like a bunch of self-interested whiners who can’t appreciate the value of short-term pain for long-term gain. Any mortgage broker planning to still be in this business five years from now has to recognize that preventing a credit bubble is in their best interest. Furthermore, our collective response has made it easy for other stakeholders to dismiss our views and we have missed the opportunity to play a meaningful role in shaping the changes.”
Still, brokers are urging the government to focus on curbing the spread of unsecured credit, rather than narrowing in mortgages – what they term “good debt.”
That position may also be short-sighted, said Larock.
“Brokers who complain that changes to consumer borrowing rules should accompany mortgage changes don’t appreciate that the real estate market is far more important to the overall economy than unsecured consumer loans,” he told MortgageBrokerNews.ca “Bluntly put, the real estate industry is an elephant and by proportion, consumer borrowing is a proverbial fly. Complaining that consumer borrowing is the real problem is just passing the buck.”