The New Federal Mortgage Rules.

A quick post from my holiday.

The new Federal Mortgage Rules, which are the worst kept secret in the country, are likely to be announced tomorrow by Minister Flaherty.

There is lots of analysis on the net, see Vancouver Condo Info for a quick summary.

Here is my 2 cents. In one sentence..

Too little too late.

Lets think about it. The BOC and drop rates to the same level as near bankrupt countries like the US, even Europe which is in worse shape didn't drop that low. Then the Government increases the CHMC borrowing capabilities, doubling it, despite what happened in the US with Freddie and Fannie and sits back while folks are pulling out 95% of their equity or buying with 5% down and then say..

"Where did this housing bubble come from??"

" What's that? If I mix gasoline and tinder and add a match we get a big fire... wow I didn't know that"

It came from the policies, of encouraging debt and speculation and absentee owners, and all back-stopped by the tax-payer.

Anyway these changes are more important for their optics than their effect. Everyone is now saying we are in a bubble and this needs to be dealt with.

Of course if we were serious, we would shutter the CHMC for six months too. that's what the Chinese just did. They told their banks to just stop lending to try and break the bubble in Shanghai and Peking.

Imagine if we stopped CHMC-backed mortgages and banks had to lend high leverage loans on risk to their own balance sheets. And imagine those same banks were told, that losses which lead to policy change (bail-outs or fiscal accomodation) would lead to a complete change of the senior management...then we would see some real action.

However our politicians and bankers don't really want housing to return to a reasonable multiple of income, they want to show their clean hands and say.."We did what we could. It is all your own fault".