# Canada's Mortgage and Housing Corp under the oversight of a federal regulator.



## emperor (Jul 24, 2011)

Surprised no one has posted about this yet. Am I the only one that thinks this is a huge deal? It should pull the market down to reality and stabilize it.

Here is the article



> Ottawa is ramping up oversight on federally backed housing mortgages, as Finance Minister Jim Flaherty tabled legislation in Parliament on Thursday that aims to put Canada's Mortgage and Housing Corp. under the oversight of a federal regulator.
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> The new legislation would also ask banks to shoulder some of the lending risk in Canada's red-hot real estate market.
> ...


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## Cal (Jun 17, 2009)

What I read between the lines is that the gov't is not so sure of a soft landing, and doesn't want to look like the bad guy in the public's eye.

The move is long overdue IMO, I am not so sure how much it will stabalize the RE market, but it should begin a trend towards normal ranges.


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## emperor (Jul 24, 2011)

What I found the most interesting is 



> The new legislation would also ask banks to shoulder some of the lending risk in Canada's red-hot real estate market.



If a bank has to take more risk when lending they will be more careful. Which should make it harder to get a large mortgage.


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## Square Root (Jan 30, 2010)

On the surface this makes sense to me. Clearly it will be more difficult for underqualified people to get mortgages. This is as it should be.


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## OhGreatGuru (May 24, 2009)

Sounds like a sensible precaution to me. We all want CMHC to avoid the risks undertaken by the likes of Fanny Mae & Freddie Mac. CMHC was headed down the road of approving 40-year mortgages and zero down payment mortgages before the government stepped in. Setting up better federal oversight might head off such risky policies before they become problems for government to address. (Leaving it to the government has three problems: a) unperceived risks being taken because agency is not regularly monitored; b) delayed reaction when government does become aware of risks, and decides some action needs to be taken; and c) government decisions can be based as much on politics as on financial prudence.)


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## Mensa (Oct 19, 2010)

I think it's a huge deal too, emperor. Especially given the the underwriting requirements that OFSI suggested earlier this month (or maybe it was in March?).

The gov't is clearly looking to distance themselves from the potential housing bust. It seems clear as well, that they're not going to be increasing the 600b ceiling, which is (imho) a good thing. It'll almost certainly tighten up lending.

Eminently sensible.


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## 44545 (Feb 14, 2012)

emperor said:


> What I found the most interesting is
> 
> 
> 
> ...


I picked up on that too.

I wonder though if it's too little, too late to ensure a soft landing for the housing market. Being a renter, I'd like to say, "I don't care," but I suspect a lot of my other investments would suffer during a housing crash.


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## Mall Guy (Sep 14, 2011)

Read an interesting article on how this will change liquidity in the market, as CMHC starts to bump up against their $600 M lending limit. It also pointed out that private mortgage insurer Genworth Financial is also bumping up against it's government regulated lending limit ($250M I believe). By not increase these limits, the Gov't is able to tighten the money supply available to the housing market, without chocking it off all together (in theory anyways), with the belief that this should create a soft landing rather than a crash. Time will tell. And if main stream lenders are forced into taking more risk, there will be a higher risk premiums (via interest rates) and higher underwriting standards (again in theory). 

Either way, in January, I started to aggressively pay off my mortgage(s) against rising interest rates at maturity in a couple of years (lump sum, double-up, and 10% increase in bi-weekly payments).

http://www2.macleans.ca/2012/04/23/...t-may-soon-deflate-or-pop-the-housing-bubble/


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## Cal (Jun 17, 2009)

http://business.financialpost.com/2...of-mortgage-insurance-business-flaherty-says/


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## 44545 (Feb 14, 2012)

I read both of the above-posted articles a while ago. For those who'd rather not, this graphic from the MacLean's article puts the CMHC cap in perspective:










This assumes the caps for Genworth and CMHC aren't raised (a fact that's implied by statements by Flaherty).

The issue as I understand it is that increased costs of borrowing or more stringent lending standards will _generally_ result in a decrease in housing prices, the bubble deflating. 

How fast and to what degree that happens could/would be affected by how fearful sellers are and how aggressively they mark down their homes, trying to bail before things get "worse." (much like people bailing when equity markets are down - the downward side of the "greed/fear" coin)


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## kcowan (Jul 1, 2010)

The problem is that, once the bubble bursts, there is no demand except people being forced to move by their companies.


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## emperor (Jul 24, 2011)

There should be a correction of 25% I figure. Average home price should be 270,000 not 360,000. More should also be done to bring the price of owning a house down.


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## HaroldCrump (Jun 10, 2009)

emperor said:


> More should also be done to bring the price of owning a house down.


Ironically, it was EXACTLY that noble vision that ended up creating this bubble : i.e._ the government should make it easy for people to own a home_.
As is the case with every government action - the net result is the exact opposite of what was intended.

They did that in the US as well with Ginnie Mae, Freddie Mac, etc. and we all know how well that turned out.


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## Brenner (Jan 17, 2012)

emperor said:


> There should be a correction of 25% I figure. Average home price should be 270,000 not 360,000. More should also be done to bring the price of owning a house down.


What we have found out is that the general populace does not care what the home price is, they care what the monthly payment is. Reduce the monthly cost and they will just buy more.


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## emperor (Jul 24, 2011)

Ya, your both right. 

It's still too bad though. Stupid Joneses, costs so much to keep up with them.


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## Lucy (Mar 10, 2012)

The problem with any RE correction is the massive layoffs created across the board and the persistent fear of losing your jobs including many people posting on this forum. Prices do not correct without a lot of fear and tears. Many do not realize what a huge snowball effect a RE correction causes in regards to employment. Construction, lawyers, banking, furniture, agents, movers, appliances, automotive etc, etc, etc. It has been said 30 businesses are effected when a home is bought and sold. We can thank our political system for letting this get way out of hand.


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## donaldmc (Feb 27, 2012)

Oh..I was quite surprised, well thanks to you, for sharing this news to us. It's great to know this.Keep it up!!:encouragement:


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## Berubeland (Sep 6, 2009)

Lucy 1+


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## meddlesomemarmots (Feb 16, 2011)

OhGreatGuru said:


> Sounds like a sensible precaution to me. We all want CMHC to avoid the risks undertaken by the likes of Fanny Mae & Freddie Mac. CMHC was headed down the road of approving 40-year mortgages and zero down payment mortgages before the government stepped in.


Did the 40 year mortgages and zero down payment allowances not come in during this government?

In my opinion, this recent move is an attempt by Flaherty to shift blame away from his office if the market does hit a period of decline. This move allows him to blame the bank and OFSI - and point at the years of real estate prosperity thanks to his lenient demands for CMHC backed mortgages. It's political genius really - he has the opportunity without ha of walking away from the upcoming mess without having his knowledge called into question like Greenspan in the States.


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## the-royal-mail (Dec 11, 2009)

Zero down payment mortgages came in around 2003-04. Not Flaherty's doing.

I think it might be worth thinking of the bigger picture. Regardless of who you might like to blame, I don't think that's the point. Just look at the overall net effect for the govt. In 10 years+ they've managed to double the costs of housing which has devastated the middle class and caused wage slavery for us. At the same time, the supply of good quality, affordable apartments has virtually dried up. Today, based on MPAC values in many populated areas being double what they were 10 years ago, the govt is collecting 2x as much from you in property tax. There is also GST, CMHC and other fees that end up in the pocket of the govt. These amounts are significantlly more than they were 10 years ago. So even if there's no crash and everyone walks away, the govt wins because their various policies (HBP, CMHC, 0 DP etc) have all artifically inflated housing prices and caused us all to pay much more in annual taxes and other fees.

Sadly, no one seems to realize how much responsibility and burden this puts on middle class families having to spend $640K on a nice urban house. I place most of the blame for this on the govt.


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## Potato (Apr 3, 2009)

the-royal-mail said:


> Zero down payment mortgages came in around 2003-04. Not Flaherty's doing.


2006, Flaherty. 40-year amortization the same year.

2003 was the lifting of the limit on the size of an individual insurable mortgage.


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## HaroldCrump (Jun 10, 2009)

I think the RE bubble is government agnostic.
Securitization of mortgages started in early 2000 or maybe 2001 and the Canada Mortgage Bond was IPO'ed shortly thereafter, I recall.

There has been a systematic, planned creation of a RE bubble for well over 10 years now - it doesn't matter which party is in power, who the PM is, and who the FM is.
Governments (and central banks) talk from both sides of the mouth - on the one hand, they beg consumers to not buy expensive houses, and on the other hand aggressively (and consciously) implement policies that inflate RE prices.

Watch what they are doing, not what they are saying.


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## Homerhomer (Oct 18, 2010)

HaroldCrump said:


> Governments (and central banks) talk from both sides of the mouth - on the one hand, they beg consumers to not buy expensive houses, and on the other hand aggressively (and consciously) implement policies that inflate RE prices.
> 
> .


This actually doesn't just apply to RE, it applies to everything, they want us to continue spending and stop spending both at the same time ;-), with houses being treated like an ATM they sure want it to continue, the moment the values drop so will other spending, and for anyone wishing the RE to drop significantly be careful what you wish for, you may be out of the job as well ;-)


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## meddlesomemarmots (Feb 16, 2011)

Potato said:


> 2006, Flaherty. 40-year amortization the same year.
> 
> 2003 was the lifting of the limit on the size of an individual insurable mortgage.


Ah thanks - thought that was right - was second guessing myself for a minute there! Flaherty tore down the amort. restrictions and downpayment rules, and then 



The Royal Mail said:


> Sadly, no one seems to realize how much responsibility and burden this puts on middle class families having to spend $640K on a nice urban house. I place most of the blame for this on the govt.


I think the problem with the market is summed up pretty well by yourself there. No one _has_ to spend $640k on a nice urban house. They choose to. There are plenty of rental houses, condos, townhouses, other cities. When they stop choosing to, listing will shoot up, and prices will begin to slide.

I blame the government for placing an undue amount of risk on the taxpayer, and giving the banks a free ride - but I blame the people signing on the dotted line for buying into this crazed mentality. Essentially it comes down to people having a lack of patience, a lot of belief in the marketing from real estate firms and a high level of self entitlement.


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## HaroldCrump (Jun 10, 2009)

Homerhomer said:


> This actually doesn't just apply to RE, it applies to everything


True, it applies to everything, however, housing is the core of all spending.
The spending on housing drives all other spending because it determines a household's true disposable income.

By following a conscious and deliberate policy of minimizing the monthly payment for houses (by allowing extended amortizations, low interest rates, socialization of risk, etc.) the govt. in collusion with the financial & RE industry has ensured that not only have households fettered themselves with debt for 40+ years, they also have the "liquidity" to spend on other conspicious consumption items (leveraged through further debt via HELOCs etc.).

This whole racket is a "How To" guide on how to create and perpetuate a bubble.

_The Dummies Guide to Creating and Inflating a Bubble_


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## kcowan (Jul 1, 2010)

In the olden days, we could rely on banks to only lend money to people who has a shot at paying it off. That was before the originating banks were allowed to fob off the loan on someone else. Once we stopped holding the banks' feet to the fire on the loan they originated, we lost all accountability. Holding interest rates low for way too long was an aggravating factor because that always causes inflation by stimulating the economy.

Looking for someone to blame is a fool's game. What's done is done.


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## Cal (Jun 17, 2009)

^ Sounds like something Greenspan would say now. lol.


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## Cal (Jun 17, 2009)

I would love to see some current stats on how many buyers in the past year have bought with only 5% down, or how many have bought with 1.5% down and the rest of the 5% being borrowed. The more I think about how many homeowners are out there, with so much home bought with so much leverage, makes me think the RE market might really get a kick in the @ss. 

Were all buyers to have to put 20% down, like my parents generation, any RE market downturn would not be so hard on the economy.


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## Butters (Apr 20, 2012)

With the prices going up like crazy, the RE agents are making a killing... if only we could lower their commision! You sell 10 houses for 250k, you make 75k profit... (or get 10 buyers) (based at 3% per sale) Imagine if they got both the buy and sell  $$$$$$

Thats less than 1 transaction a month!


I'd love to see some change 
shorter amortization, and bigger downpayment

but we all know nothings going to happen

expect that .25 rate increase in a year from now

in 4 years when all those locked in 2.99% people have to resign their mortgages could be an interesting time 

when oh when is the right time to buy


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## ddkay (Nov 20, 2010)

If the economy shows signs of another "soft patch" or "fiscal cliff" 0.25% is in the cards


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## Causalien (Apr 4, 2009)

"The price doesn't matter, only the monthly payment does."

I've been hearing this repeated over and over again in the media from young couple who decides to pluck down a chunk of their life for a house. So I stared at two different set of number for a while and had my a-ha moment.

Technically, the statement is true. In a high interest environment the house price would be lower but the interest rate higher which makes the monthly payment the same as in an environment where interest is low and price is high. Now, taking the two as equals and admitting that in terms of monthly payment it is true.

However, when looked at it side by side, the high interest low price environment is almost preferred because if payment is the same, there's no point in preferring a higher principal. 

So one conclusion is reached. Buy at the cusp point of interest rate gets lowered from a high interest environment and sell at the inflection point where interest rate gets adjusted upward from a local low.


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## andrewf (Mar 1, 2010)

Agreed. For a given monthly payment, it is riskier to buy in a low interest rate environment than I high interest rate environment. It's basically mean reversion for interest rates. Especially since interest rates cannot fall below zero.

It's possible that interest rates will stay near zero for decades. I don't think it's likely, though.


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## Berubeland (Sep 6, 2009)

In a way I much prefer the American system of having a mortgage term for the length of the amortization. It puts an owner at much less interest rate risk than our system of renewals. Especially if OFSI changes the rules and you have to requalify to refinance every mortgage term even for renewals like they are discussing now. 

I also read the following post about the current CMHC board members...http://vreaa.wordpress.com/2012/05/...-the-canada-mortgage-and-housing-corporation/


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## Cal (Jun 17, 2009)

Guidelines Press Release:

http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/notices/osfi/b20_nlet_e.pdf

I didn't figure they would make people have to pay up if the home value decreased by a renewal date. Seems like that is out.

Really it just seems like alot of talk, unless you are currently maxed out with a HELOC. Then you would have to reduce the amount a bit....but I think the final release is later this month or next, with the rules coming into effect later in the year.

I am a little disappointed. IMO far too many have taken on far too much debt. OFSI should do more to proetect these people from themselves. Too many people have no clue how low rates currently are, and how they would be impacted were they to rise to historical norms.


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## marina628 (Dec 14, 2010)

Since when is HELOC 65% of the house value , Mine has been based on 80% value since 2001.


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## Cal (Jun 17, 2009)

The press release if for their upcoming recommendations, that should officially be released later this month or next. Coming into effect later this year. As I understand it, if this goes through you would have to reduce your HELOC outstanding amount later this year, or by the date the changes come into effect.

http://www.theglobeandmail.com/repo...roposed-mortgage-rule-changes/article4236287/


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## marina628 (Dec 14, 2010)

My balance is about 10% of the credit limit available ,I mean we always get 80% of the value on our credit line minus the mortgage.Not worried about them reducing it but thought it was already the rule.


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## sags (May 15, 2010)

As I understand the new regulations, the biggest change may be that CMHC insurance may no longer be applicable for mortgage bonds the banks sell to investors.

That would mean the banks would have to keep the loans on their own books, and lending criteria would be inevitably tightened without direct government rules.


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