A former TD Chief Economist and Department of Finance analyst is perplexed by Jim Flaherty
’s obsession over mortgage rates, and sees a rate of 2.95 as being in step with bond yields.
“It actually perplexes me, the actions by the finance minister,” Don Drummond said in an interview with CTV News, just ahead of Thursday’s budget announcement. “If the finance minister is worried, there are all kinds of direct levers he has, that he has exploited recently.”
The levers Drummond speaks of includes tightening of the mortgage rules that were put in place last year by Jim Flaherty, requiring a larger down payment and reducing the maximum amortization for insured mortgages.
Not on that list, suggests Drummond, is the kind of direct intervention Flaherty’s engaged in this week, asking Manulife to reverse its decision to lower rates from 3.09 per cent to 2.89.
“I get the concern of the housing bubble; I get the concern of the debt,” Drummond said. “But 2.95 per cent doesn’t seem particularly low, especially when you consider that the banks back up their mortgages with bonds,” he said. “You take a five-year mortgage that is backed up by a five-year bond that pays 1.7 per cent. A typical mortgage is 2.99 – that is a nifty mark up.”
Flaherty had spoken out in early March when BMO posted a 2.99 per cent rate on a 5-year fixed mortgage, expressing fears that a rate war would be ignited for the spring season. At the time, he personally contacted BMO to express his displeasure with the rate. The institution nonetheless kept that offer in place.
Drummond’s interview comes on the cusp of the federal budget to be presented today, a budget that Flaherty has hinted will aim to balance the budget by 2015, eliminating the $26 billion deficit in three years. So far Flaherty has stated that he is pleased with how the housing market has cooled off and how personal debt has been reduced.
In the intervening months, organizations such as CAAMP
have campaigned vigorously to have restrictions on first-time buyers lifted, with CAAMP CEO Jim Murphy meeting personally with the finance minister just recently to ask for a return of 30-year amortizations and increases to the first-time homebuyer’s tax credit.