The finance minister needs to clean up his own house before pointing the finger of blame at the banking and mortgage community, suggests an analyst from the CD Howe Institute.
“There is a slight irony that Mr. Flaherty is after the banks, when some of the crown corporations are worse offenders when it comes to accumulating debt,” says Philippe Bergevin, a senior policy analyst with right-leaning C.D. Howe Institute, adding that one corporation has almost as much debt as the entire banking community.
That Crown corporation, Farm Credit Canada (FCC), has taken on farm debt at an alarming rate.
“In one decade, their share of farm debt has risen from 20 per cent of market share to 30 per cent,” says Bergevin. “That is almost as much as the combined debt of all of the banks.”
To date, Flaherty has directed his attention and energies at one crown corporation, the Canadian Mortgage and Housing Corporation, restricting the insurer from taking on any more high-ratio refinances (CMHC now backs almost $600 billion in mortgages at face value).
Part of last year’s federal budget directed the Office of the Superintendent of Financial Institutions (OSFI) to produce annual reports on the risks embodied in CMHC’s books, putting the agency on a regulatory footing closer than that of other large financial institutions.
Along with CMHC and FCC, the other major federal lenders include Export Development Canada and the Business Development Bank of Canada.
But the free hand enjoyed by the FCC does give them an unfair advantage over mortgage brokers hoping to take on farmers as potential clients, says Bergevin.
“It is very difficult for brokers to match these offers; it’s unfair,” he says. “There needs to be a closer look at the lending practices of the FCC. It needs to become a public issue.
“The FCC gets cheap capital by way of its federal backing, and pays no income tax, allowing the FCC to be an extremely aggressive competitor in farm and agribusiness lending, its pricing and terms,” says Bergevin. “It offers low down payment loans, interest payment holidays, interest-only loans, permits rolling-over loan interest, sells loan life insurance and more.”
In addition, the FCC will lend against dairy quotas and the green energy contracts with the Ontario government, all the while offering easy terms of no security deposit or additional security required, the freedom to skip payments, refinance and re-qualify without reapplying.