Canadian banks and mortgage insurers went up in arms over Finance Minister Bill Morneau’s announcement of new rules governing mortgage last week, fearing that the regulatory changes—intended to address the country’s overheated housing markets—will do more harm than good at this point.
Financial institutions warned that the rules will instead cause mortgage rates to balloon, which in turn might push consumers towards unregulated lenders, Bloomberg
Among the most contentious portions of the announcement is the proposal for tighter “stress testing”, a move that the Canadian Bankers Association argued is unnecessary as all mortgages already pass through a “double-underwriting” process (that is, both insurer and lender underwriting in each transaction).
“The insurers will be hit twice as hard as anybody else,” according to Dan Eisner
, founder and CEO of True North Mortgage in Calgary.
First National Financial Corp., which is the country’s leading non-bank mortgage lender, announced that to mitigate the risks brought by the new rules, it has postponed mortgages for rentals and self-employed professionals for the time being. It added that the regulatory changes will compel them to pass on the added costs to consumers.
“[Federal authorities] should consider potential unintended consequences such as disadvantaging monoline lenders from a competitive standpoint because those lenders are less able to deal with a risk sharing model than the big banks are,” Genworth
MI Canada CEO Stuart Levings said.
The new risk-sharing model would also mandate lenders to pay deductibles in loans that have gone south, a stipulation that has baffled banks as Canadian mortgage delinquency rates are around 5 times lower than those in the United States.
“We don’t understand what a deductible is intended to achieve as a policy outcome,” Canadian Bankers Association vice president of finance, risk and prudential policy Darren Hannah said. “If it’s supposed to be something to improve the quality of underwriting, well the quality of underwriting is already very strong.”
New housing measures announced
Higher costs to be assumed by banks following new rules