I really cannot get over the fact that Harper's Government is almost doubling the CHMC's ability to lend in just over a year.
What are thinking? What happened to the fiscal Conservatism?
Think about it..if you are a bank lending officer and sitting across from you is someone who has, with great difficulty, saved 15-20% down-payment but is subject to the vagaries of the job market or someone who can only scrape together 5-10% but has a government-issued CHMC guarantee behind them...which would you lend the most money to?
I know the concept of the CHMC is laudable. Help low earners get on the property ladder. It was the same rationale used by Fannie Mae and Freddie Mac and the HUD in the US.
In fact what happened was a catastrophe. A lot of these folks were too extended to get into their purchases, had very little 'skin' in the game and with the smallest drop they lost their equity and stopped payments.
Lower income earners are also, unfortunately, the most likely to get hurt first in a recession.
'The federal government has quietly given Canada Mortgage and Housing Corp. more financial muscle, raising concerns the multibillion-dollar agency is expanding at an unprecedented pace with little oversight.
For the second time since the beginning of 2008, Ottawa has raised the amount of mortgage insurance CMHC can have outstanding. The increase moves the cap to $600-billion, up from $450-billion and nearly double the $350-billion limit in place at the end of 2007.' Globe and Mail October 21st.
What does this all mean? It means when, and if the second round of the recession comes in 2010, there will be nothing left to fight it with. The Provincial and Federal Governments are already tapped out and the Federals will be dealing with CHMC losses and Baby-boomer costs. There will nothing left to stimulate with.
We will be forced to live within our means.
The governments here have made many decisions, some good and some bad, but this is one of the worst.
To 'Help' people to get into housing when the economy is so uncertain, when the prices are near or at their peaks, when interest rates at so low and could conceivably double in the next few years, is....IMVHO ECONOMIC LUNACY and purely political!!
What this amounts to; is the government directly putting money into seller's pockets, propping up the price of housing - often lower end eg developers building condos, and penalizes the prudent who saved a large down-payment. It also leave a sword of liability hanging over future generations.
ReplyDeleteI think there's nothing inherently wrong with the CMHC's mandate. What has gone wrong is that the Conservative government ordered them to 1) allow higher ratio loans with longer amortizations, and 2) grow their balance sheet exponentially to provide these terms to a vast majority of the market. Take away either and you don't have nearly as large of a problem. This is market interference on a grand scale, and it is caused by the Conservative government.
ReplyDeleteThere are plenty of low income families in this country for whom it is possible to pay a small mortgage instead of rent but it is not reasonable for them to save a 20% downpayment. The CMHC is supposed to help them, and apply it's own strict standards to control losses. This is a laudable and worthwhile social goal which has been utterly lost.
Now after having inflated the price of houses beyond all reason by extending CMHC's terms to everybody, they are helping poorer people to buy completely unaffordable houses. No doubt they will blame them for the collapse, just as was done in the US. Alt-A was a much larger problem than subprime because it drove all the speculation and created most of the artificial demand. Those swaths of new housing developments sitting empty were not for subprime borrowers.
At the end of the day it is the irresponsible members of the middle class who don't think ahead that are the biggest problem. They are being snookered and will be wiped out. The poor get blamed for it all, while the rich profit. And the government allows it all to happen.
I'm not a big believer in class warfare, but it's certainly happening.
fish, I think the low interest rates are here to stay for a very long time. We are going the japanese way.
ReplyDeleteThe goverment will continue to raise the ceiling of borrowing for CHMC to 1 trillon if need be. Central banks and goverments are going to inflate evth and they will succeed eventually 10 to 15 years down the road. The thing is that so far people seem to be paying their morgages despite the severe recession. Do we know anything from CHMC about deliquency rates? If not, then maybe they are right in their approach. Where it does not make sense to me is the commercial real estate as this is not guratneed from CHMC and it has the lowest cap rates I have ever seen, so surely people must be loosing money...maybe we will see some crack there in the coming months first before the residential real estate, unles BoC starts buying their debt which is a posibility. I think everybody is fighting for TIME hoping things will improve, so I guess TIME will tell.
Anon
ReplyDeleteI suspect CHMC deliquency rates are low. We could probably find the number if we looked hard enough on the net.
However with near all time high prices, if you cant pay, you sell!
The problem arise once prices drop as little as 5-10%. then those with very little of their own money in the purchase and stresed finances will wlak. If it happens, it wont happen slowly, but suddenly like last year.
rp- you are right the concept is good, hwoever as they have learnt in the US, free market economics and altruistic economics dont work very well together.
When times are good, the money men on Wall Street made a mint and the poor made a few crumbs.
When it hit the fan, the poor were foreclosed and the money men were bailed out and still kept and even got higher bonuss (Goldman Sachs will payit's biggest ever bonuses in 2009-one year after taking $13 Billion in AIG bail-out money)
I was looking at the CMHC site, and it surprises me that they accept loans for the 5% down and they decide on "affordability" based on present-day interest rates rather than the market expectations going forward. CMHC is taking on irrational risks that a for-profit corporation would avoid. There is trouble brewing. I can smell it!
ReplyDeleteGavin's numbers show a big sell/list # for GV- however my West Bubbleville shows 9 listings 4 changes and zeeeero sales. Maybe they will reverse tomorow.
ReplyDeleteBWT throw up a chart of the US ten or twenty year bond rates eg $TYX or $TNX. There have been some significant moves up in interest rates in the last month or so and we are now at technical support.
10 listings, 5 sales, no price changes.
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