Banks won't impose own tighter mortgage rules: TD

Banks won't impose own tighter mortgage rules: TD

Canadian banks are not likely to impose stricter mortgage qualifying rules on their own to curb the nation’s rising household debt, TD chief executive officer Ed Clark told The Globe and Mail.
The banks fear they will suffer a major loss of customers to rivals so it would be up to the government to change mortgage policy if that’s the biggest concern for personal debt. “Personal banking is a highly competitive industry,” Clark told the national newspaper. “If we said, ‘Look, we’re going to be heroes and save Canada from itself, and we’ll impose a whole new mortgage regime on everyone else,’ the other four big banks would say ‘Let’s carve them up.’”
Earlier this week on Monday December 13, Finance Minister Jim Flaherty said if necessary Ottawa would tighten the mortgage rules further. TD’s analysis shows the most direct way to help the debt situation would be to shorten the maximum amortization schedule from 35 to 30 years.
Other options include forcing homebuyers to pay a higher minimum down payment, or extending the qualifying rate to six or seven years from five.
“Borrowers have become used to low rates and are borrowing more money, thinking that these low rates are sustainable,” Margo Wynhofen, Verico One Mortgage Corp. broker and president of the Independent Mortgage Brokers’ Association (IMBA) of Ontario, told “When mortgage rates go back up to seven-and-a-half, eight per cent, those payments will not be sustainable.” Wynhofen asks her clients if they’ll be able to afford the mortgage when the rate does eventually return to normal levels. But she sees other types of consumer debt as the bigger issue.
The CMP comment board from the Flaherty announcement shows other brokers are also pointing to non-mortgage-related places where the debt problem is being compounded, such as credit cards and car loans. “If any industry should be regulated, it should be the auto finance industry,” said one on “I see people who do not qualify for a mortgage debt consolidation but they are able to get a new car financed.”
Another wrote: “It’s credit card debt that’s the issue. The policies are way too loose in the first place. Every credit application should have to qualify on its own merits. There should also be support documents required and verified. The Canadian banks rake in huge profits off credit cards, lines of credit and loans. Of course the banks are not going to want tighter restrictions on the higher interest-generating business. Why ask them? Killing the mortgage industry is not the answer.”
  • Vancouver Broker 2010-12-17 8:22:53 AM
    I find it surprising that the government is considering mortgage debt to be the problem here. What they need to do is force credit card companies to have 100% cash coverage on hand for all their credit extended, or regulate the rate of interest charged on non-secured debt. Or eliminate fees from credit cards etc. If a person is in financial difficulty, the mortgage is paid first, everything else afterwards.

    We (mortgage brokers) are already qualifying buyers at almost double the rate they are actually paying, and the other changes implemented have taken lots of marginal borrowers out of qualifying for a mortgage. I think the changes are sufficient. Plus the government can just reduce the amount of money CMHC is allowed to insure, which would have an immediate impact on liquidity in the mortgage market.

    The government can also force lenders to increase their reserve ratio, which would limit the amount of credit that can be extended. All of these changes would have an impact for sure, without hurting existing mortgage holders.

    What SHOULD NOT happen is reducing the amortisations that are available, since this simply forces a borrower to pay a higher payment at any given interest rate, and makes the payment increase faster for any increase in interest rates. Plus it disqualifies many current homeowners from being able to manage their mortgage via refinancing into a lower interest rate, as they would not qualify for a new mortgage under new rules. THE BANKS WANT THIS TO BE THE CASE, as it allows them to offer posted rates at renewal, knowing the borrower will never be able to qualify for a better option at another lender.

    All of these changes that are supported by the big banks are inherently against the best interests of Canadians. I also believe that using legislation at the federal level is not the answer, there are existing committees responsible for financial oversight that can effectively manage all this without having to pass new legislation every time a tweak is needed. We all know how hard it is to get anything passed in parliament.

    Thanks for reading.
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  • Tim 2010-12-17 1:27:40 PM
    Well said Vancouver Broker. Remember that TV ad where the guys walk around with their hands in peoples pockets which represents the banks. Boy is that the case here. One of those pockets includes Flaherty. High interest credit card debt is the devil here. UNSECURED DEBT. At least with a mortgage or car loan there is an offsetting asset. Granted it might depreciate in value but if it does it usually is at the same rate of the declining balance of the debt. When you first buy a car or a house it does not effect your net worth. Yes there are exceptions like our neighbours to the south but having the "best banking system in the world" and the policies in place we are at least being proactive. When the economy goes south Food Clothing and Shelter are always the first to be paid. But there will never be any changes to obtaining a credit card or line of credit because of the profits involved and the lobbying involved with the Feds. The banks have sat up and noticed the mortgage broker industry because we can offer something that they cannot- OPTIONS. The banks would love the Feds to legislate new restrictive mortgage policies because then everyone including mortgage brokers would have less choices for the consumer. As the saying goes "Government-and in this case Banks- Hates Competition" . (singing) Hands in my pocket Hands in my pocket
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  • DanP 2010-12-18 12:31:13 AM
    TD's CEO explains it well when he admits banks would not tighten mortgage credit policies at the risk of a consumer backlash. They (Banks) will just lobby the Feds to do their dirty work for them. Banks can then use the argument that "it's the Gouvernement fault" and "we, your best friends for life, are here for you" all the while robbing the consumer into poverty with their exobitent fees and rates.

    When was the last time you saw ANY Bank voluntarily, and substantially, reduce ANY banking fees/rates as a "thank you" to its clients for pumping Billions in their coffers? That’s as rare as the proverbial mythical unicorn.

    Kudos to Vancouver’s comment below; well said and dead-on!

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