# Flaherty: Mortgage rates shouldn�t be a �race to the bottom�



## Ethan (Aug 8, 2010)

*Flaherty: Mortgage rates shouldn’t be a ‘race to the bottom’*



> OTTAWA — Finance Minister Jim Flaherty is attempting to stop another mortgage war from escalating, warning Canadian banks not to “race to the bottom” end of lending rates in a competition for customers.
> 
> “Our government has taken action several times to make sure the housing market remains sound,” the minister said in statement Monday, after the Bank of Montreal cut its five-year fixed-rate mortgages to a low of 2.99% from 3.09%.
> 
> ...


Anyone else concerned that the finance minister is trying to dictate strategies to businesses? If the banks aren't capable of setting their own interest rates based on market forces, what type of economy do we have?

On the one hand, we have Mark Carney and the Bank of Canada telling businesses to start spending more money. On the other hand, we have the finance minister telling the banks to charge higher interest rates (and therefore, reduce lending from what could be achieved at a lower rate). The two messages are contradictory and bely an even bigger problem, the government attempting to tell the markets how to behave rather than letting the markets behave naturally.


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## sags (May 15, 2010)

Flaherty doesn't want a housing market blowup..........just before the next election.


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## peterk (May 16, 2010)

The messages are contractory only in the sense that there is no correct answer...

All the blaming I read regarding how the conservatives "started it" with the 40 year mortgages is ancient history now, but no one seems to want to let that one die.

A press statement suggesting banks act in a certain way is hardly government market manipulation.

I take this announcement, and other similar government statements, as a warning to the Canadian people. He's warning us that banks are acting in a way that's (perhaps) going to cause trouble for us Canadians. He's giving us a heads up that we should be paying attention to what the banks are up to, learn what's going on, and act/prepare according to our findings.


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## andrewf (Mar 1, 2010)

People really shouldn't complain about government meddling in the housing market. The government is already an intrinsic part of the market between mortgage insurance, deposit insurance, regulation, etc. Merely 'jawboning' (which Flaherty is doing here) is nothing to complain about.


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## Lephturn (Aug 31, 2009)

I find it interesting that the finance minister can come out and say this - can ask the banks to all do things like stop offering low interest variable rate mortgages - while if they colluded to do this on their own the banks could be in legal hot water.

I am personally pissed that mortgage rates are being used instead of adjusting lending standards. That means that responsible borrowers like me who is mortgaging less than 50% of the value of my home have to pay higher rates for no good reason. My prime - .75% mortgage at 2.25% is already about to jump to a 3% fixed and there is no good reason for it. None of the extra money I pay will do anything to help prevent a major adjustment in the real estate market, it will just pad the income statements of the banks. The extra money I will pay the bank will do nothing to insure against a major problem in real estate and it will not help mitigate any damage.

Instead of trying to work on rates for all borrowers, why not simply adjust the lending standards/rules and force the banks to hold more collateral on higher risk mortgages? That would mean rates would go up for some (those that are higher risk) without penalizing the rest of us who are not high risk.


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## andrewf (Mar 1, 2010)

Government is not forcing the banks to offer certain rates. Banks would offer P-0.75 if they wanted to. Turns out they don't (based on their funding cost).

Most of what the government has done has been on lending standards. No more cash backs, no more 35/40 year amorts, tighter LTV, etc. They've done all this because they can't use the blunt instrument of raising the overnight rate.

I think macroprudential stuff should be tied in with the Bank of Canada. BoC could have tightened household lending (or rather avoided loosening it ~2006) and avoided inflating this housing bubble that is currently hanging over the economy like a sword of Damocles. At least CMHC is under adult supervision now (OSFI), and soon won't be governed by a bunch of housing industry bagmen.


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## james4beach (Nov 15, 2012)

Ethan said:


> Anyone else concerned that the finance minister is trying to dictate strategies to businesses? If the banks aren't capable of setting their own interest rates based on market forces, what type of economy do we have?


lol you're kidding right? The only reason mortgages & housing is so hot in Canada is due to the incredible stimulus from CMHC (government). The banks love it, and the whole government system is the backbone of the Canadian mortgage process.

Canadian banks (at least their mortgage businesses) would be nothing without the CMHC.

But I agree with you... government shouldn't be involved in mortgage rates. The CMHC should shrink its $600 billion balance sheet, and banks should be responsible for carrying the risk of mortgages. NOW let's see what your mortgage rates go to.


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## Ethan (Aug 8, 2010)

> Let’s face it: This is a great time to be in debt. Never mind the warnings from bank officials, economic handwringers, Prime Minister Stephen Harper and Finance Minister Jim Flaherty. Today, Mr. Flaherty is warning banks not to cut rates too low in a “race to the bottom” — *as if competition were a destructive part of banking*.


http://opinion.financialpost.com/20...bottom-proves-its-a-great-time-to-be-in-debt/

Governments usually wish to prevent monopolistic behaviour, as opposed to promoting it.


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## HaroldCrump (Jun 10, 2009)

This is all lip service and nothing more.

There is an active and aggressive program to pump the housing market in Canada, at least since 2007.
The pumping has been accelerated to a feverish level since 2009 - 2010.

I am with Lephturn as well - as a responsible borrower with far less than 50% mortgaged, this hurts me.
If they really wanted to control the housing bubble, there are far more important steps they could have taken.

Flaherty does not want people to stop borrowing.
Flaherty does not want to reduce valuations in the RE market.
Regardless of all the yakking, the actual intentions are the exact opposite.

And it's working.


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## andrewf (Mar 1, 2010)

What hurts you? Flaherty flapping his gums?


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> What hurts you? Flaherty flapping his gums?


No, the possibility of a large RE correction because of this senseless RE pumping.
Plus, what Lephturn said about interest rates for generally responsible borrowers.


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## none (Jan 15, 2013)

What I think is going to happen is a small drop and then a slow decline. 

- The good about this is taxpayers as a whole won't be on the hook as there won't be a ton of foreclosures and people declaring bankruptcy
- Con is that people will hang onto houses for a lot longer than they would if houses took a big sudden hit and will just bleed money for years and financially cripple them
- This slow bleed will have nation effects on spending and on the housing market in general.
- People waiting on the sidelines to buy will be waiting a long time I think (I'm one of them). If houses are simply losing value due to inflation this is a bit of a hidden value loss to most people but will be ultimately extremely financially damaging.


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## andrewf (Mar 1, 2010)

Isn't that a version of the 'soft landing' thesis? Once prices start to fall, enough buyers will step back and enough sellers will get nervous (particularly the condo specuvestors who are shovelling hundreds of dollars into their 'investment' property each month) that prices will decline at a moderate pace. I expect Vancouver/Victoria to crash, though, and there is a big enough problem there for CMHC and the banks.


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## none (Jan 15, 2013)

It is, and I'll be honest, I don't really have a strong reason to believe this besides it just seems that it would be such a canadian thing to happen. That's all I'm basing it on, I won't try to justify it with HAM (or lack thereof), static interest rates, or anything else)

Financially I think Canadian are generally pretty weak and would be ashamed to make a lot of low ball offers (compared to our US cousins). I could be completely wrong and I actually kind of hope I am because I actually think the slow melt (buzz buzz) would be more damaging in the long run that a crash.


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## marina628 (Dec 14, 2010)

I was at TD this morning and their 5 year rate is now 2.89% ,branch lady said it was not loaded in system yet but that is what the branches were offering today.


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## J Watts (Jul 19, 2012)

Article's a few weeks old, but the topic was the lead story on CTV's 6:00pm news this evening: http://www.ottawacitizen.com/business/Ottawa+home+sales+slow+January/7920571/story.html


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## balk (Dec 6, 2010)

I was at TD opening an account and chatted with the guy. He ended up showing me the spreadsheet and the minimum 5 year rate was 2.85%. This was in Montreal.


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## carverman (Nov 8, 2010)

J Watts said:


> Article's a few weeks old, but the topic was the lead story on CTV's 6:00pm news this evening: http://www.ottawacitizen.com/business/Ottawa+home+sales+slow+January/7920571/story.html


Saw that report on CBC Ottawa today. Why are they promoting that the sky is falling on the Ottawa real estate market in January of this year compared to the same January in 2009? 

It's January in Ottawa! Traditionally, December, January and February are the lowest months in Ottawa for real estate sales. 

This winter with the gloom and doom of the Fed government downsizing and tons and tons of snow...it's looking now like something out of the comic book strips (Lil Abner), where we are the little Smoos, digging tunnels in 6 feet of snow to get anywhere in -20c temperatures. 

Not exactly the incentive to go out looking at real estate over these last 3 months.


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## sags (May 15, 2010)

Ethan said:


> http://opinion.financialpost.com/20...bottom-proves-its-a-great-time-to-be-in-debt/
> 
> Governments usually wish to prevent monopolistic behaviour, as opposed to promoting it.


The owner of Dundee Capital was on BNN today and told a story of when he was talking to the CEO of a bank and he said to him "you have an easy business to run with all the government protection and a monopoly" to which the banker replied........"no, we have a cartel".


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## andrewf (Mar 1, 2010)

The sales and price figures are seasonally adjusted. In other words, this January was worse than other Januaries.


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## james4beach (Nov 15, 2012)

Have any of you ever taken a close look at the CMHC, this backbone of our real estate market?

Look at their audit committee. Go look at who is on it ... a couple property developers, one leveraged real estate speculator. You think these guys have any conflict of interest? I'm sure they're objectively and conservatively overseeing CMHC ... ha ha ha! All their buddies are hyperleveraged property speculators, there's no way in hell these guys are free from conflict of interest.

Additionally, look at how they do property appraisals, an electronic system that values property in a few seconds and which some are criticizing as quick to overvalue properties.


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## andrewf (Mar 1, 2010)

It's under OSFI supervision now, so hopefully they are not getting away with what they were before.


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## sags (May 15, 2010)

Extend mortgage amortizations up to 100 years.......set fixed terms and rates according to the length of the term.

Create a pool of money by mortgage investors to provide fixed income.

Homes will become inter-generational and the next generation can simply assume the mortgage when the time comes.

Control home prices by increasing the requirements for mortgages and therefore the numbers o qualified buyers. Lower the % of income allowed in mortgage to debt and debt to income ratios. 

There is the question if new, particle board homes will still be standing in 100 years, but at least they will own the land.

Not much sense worrying about 100 years from now anyways.

We might be overwhelmed by a plague of locusts before then.


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## andrewf (Mar 1, 2010)

A 100 year amort is effectively an interest only loan.


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## lifeliver (Aug 30, 2010)

balk said:


> I was at TD opening an account and chatted with the guy. He ended up showing me the spreadsheet and the minimum 5 year rate was 2.85%. This was in Montreal.


Some mortgage brokers are posting 5 years at 2.79%...


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