Finance Committee on June 1st, 2006

[Gerry Salembier]

Yes, although I would note that it might be relevant in this connection, Mr. Chairman, but that's for you to determine. I would note that as part of OSFI's risk assessment, they do an assessment of the reputational risk that any provider in this segment of the financial sector or others may face.

If there is a range of practices that a mortgage insurer is engaging in that is unsavoury in some way and affects its reputation, it could play into the ongoing monitoring by OSFI. It is true that market conduct is generally the domain of the provinces and not the federal government, insofar as insurance is concerned, but OSFI has that reputational risk function to perform as well.

[The Chair, Conservative, Brian Pallister]

To be clear, reputational risk is an interesting concept. We could get into the definitions, but can I be assured that the evaluation of reputational risk does not include the ability of the company to pursue all markets?

It seems to me the gist of the amendments that Madam Wasylycia-Leis is putting forward is to in some way try to regulate and ensure through regulation that the availability of mortgage insurance would not be confined to certain aspects of the market, but product availability would somehow be guaranteed through regulation.

I want to be clear that reputational analysis does not include in any way, shape, or form an analysis of the company's ability to provide mortgage insurance to all applicants. Is that correct? In other words, there is no OSFI obligation to predetermine that mortgage insurance companies are going to make their products available to all Canadians in every region of the country at every socio-economic strand. Is that correct?

[Gerry Salembier]

That is absolutely correct. It's not the function of the regulator to determine who the mortgage insurance will be provided to. It's a business decision. There will be no obligation to expand.

[The Chair, Conservative, Brian Pallister]

Correct. Okay.

Mr. McKay, do you have any follow-up? Mr. Turner has asked to put a question now.

[John McKay, Liberal, Scarborough—Guildwood, ON]

The analogy that I would draw would be to motor vehicle insurance. We had a bit of a fuss a few years ago, where difficulties arose. Frankly, people couldn't get insurance and they couldn't get business insurance. There are a variety of reasons for that.

What in this proposal can give us any assurance that this kind of market activity and the interaction of the regulators provincially and federally would not result in that rather perverse consequence?

[Gerry Salembier]

I think the basic answer to your question, Mr. McKay, is that in this area of mortgage insurance, we have a public sector provider. It is in CMHC's mandate to serve markets that may not be served by the private sector insurers. I think that where public policy in this area deals with the access to mortgage insurance is through the mandate of the public provider.

I think perhaps I'll leave it at that.

[The Chair, Conservative, Brian Pallister]

Members, if you have other questions, of course another opportunity will present itself.

Mr. Turner, please.

[Garth Turner, Conservative, Halton, ON]

I'll quickly say I'm troubled by a couple of aspects of this amendment. First, we have existing competition from the private sector. Genworth has approximately 30% of market share; no one has suggested that we try to track all of Genworth's business up to this point, and the market has been operating effectively. While you all know I had concerns about the increasing of competition in the marketplace, I don't think this tracking of private business decisions is really in anyone's interest.

Second, I'm concerned about the additional regulatory burden this will place on government and the cost it will involve.

Third is CMHC. We heard Karen Kinsley say that the real threat to CMHC is they end up with all the dogs, in terms of mortgage insurance, and I don't want any provision that's going to actually increase that.

Mortgage insurance is not a right; it's a privilege. It's like every other insurance product; you have to qualify for it. If you don't qualify for it, there's a reason, and the reason is usually that you're a bad credit risk and therefore don't qualify for insurance. It's not a right, and this particular amendment makes it appear as if providing mortgage insurance is a right.

I can just see the thin edge of the wedge here coming back to say that a certain provider who did not provide mortgage insurance to a certain client in a certain area is all of a sudden facing regulatory scrutiny, and I don't think that's the intent of what we're doing at all.

[The Chair, Conservative, Brian Pallister]

Mr. Del Mastro.

[Dean Del Mastro, Conservative, Peterborough, ON]

I agree with what Mr. Turner just indicated.

I also would like to add, perhaps to dispel some of Mrs. Wasylycia-Leis' fears, that in over a decade of retail finance, I have never seen a new competitor's entry into the market result in more difficult criteria to qualify for financing. It's always gone the other way. In fact, what happens when people are competing for market share is that they buy what we call in financing “deep”, which means they buy deals that otherwise weren't getting bought. New entrants tend to also be termed “hot buyers”, which means they approve things that otherwise were not getting approved, which means that people with shorter job tenure, worse credit ratings, and higher debt-to-service ratios are suddenly being approved. It is a good thing, particularly for low-income Canadians, that we would have this type of entrant into the market, after having qualified under very stiff criteria.

There are only positives for Canadian purchasers. We heard the financial institutions indicate these savings would be passed on to the purchasers. I think it's all positives.

I understand the intent of what you are putting forward; I just think the market will actually accomplish exactly what you're looking for, all on its own. That's basic competition.

[The Chair, Conservative, Brian Pallister]

Thank you, colleagues, for your comments.

I'll let Madam Wasylycia-Leis sum up, if she would.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you very much.

I appreciate the chance to discuss this. I disagree with many of the sentiments of the responses, both from the officials and from my Conservative colleagues.

I think you have to look at it this way. CMHC now has 70%, Genworth has 30%. We're opening it up. As we heard yesterday from officials, it's not that CMHC is going to hold onto the 70% and the competition's going to take place in the 30%; it's wide open. In fact CMHC's share over this whole area will obviously drop.

I don't think the department can have it both ways: on the one hand say that these new people coming in are genuine and they're prepared to go into near-prime or high-risk areas, and on the other hand then say it's CMHC's duty and responsibility--they don't lose anything in terms of their public policy mandate, and it's their duty to serve the high-risk market, as you just said. You can't have it both ways. You can't say it's the duty of CMHC to do that, and then take away most of their ability to do that. They shouldn't be left having to cover this country in terms of all the high-risk areas, the remote communities, the needy communities.

If it is true that competition is good and we're not going to lose anything, then surely there's nothing to be lost by putting in place some protection, some guarantees to ensure that, and not just do it on the basis of reputation.

I don't think government would, and certainly these Conservatives wouldn't do this in any other area. You wouldn't say, “Trust me”; you wouldn't say, “I believe what you say, and we're not going to put in place some accountability measures”. I thought the Conservatives were fairly strong about making sure there is no room in government and in opening up opportunities for business for graft, corruption, or greed.

I trust many of these people. I've met them all, but I think we should be good parliamentarians and operate on the basis of a good policy framework that has some protection built in. I don't think we can ignore the realities. Mr. Del Mastro says he believes every time new financial players come onto the market it betters all of us. Well, I don't know where he's living; maybe it's in a certain affluent neighbourhood. He needs to look at--

[A voice]

He lives in Peterborough.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Well, I don't know where.

[A voice]

I've never heard of Peterborough referred to as such.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

I don't even know where your riding is; all I know is that there are communities that have been left high and dry by mortgage companies, by lenders. Inner-city, old northern neighbourhoods like my own are often red-circled, so people who would make the criteria John McCallum talks about may not have access to someone to do it. If CMHC's role is greatly reduced, they won't have the capacity to do it.

The United States took action in this regard, it's precisely the reason we have concerns in Canada--it's that you end up with certain neighbourhoods where there's just no access to these services. Whether it's in the area of getting a mortgage to begin with.... And now it's the double thing: you can get one if you can put 25% down, and if you can't put 25% down, you need mortgage insurance, but you can't get access to mortgage insurance.

So all we're trying to say is let's not take away the hope, the possibility of owning your own home if you qualify, if you meet all the criteria. We're not saying let's make it harder to do business; we're saying let's just simply try to track, let's try to be responsible decision-makers. Let's not just say let the jungle prevail, because sometimes people get hurt, and sometimes there are inequities, and sometimes we have to be ready to take action.

We're creating a system where we won't be able to take action, we won't be able to do anything once the problems emerge. I think that's absolutely irresponsible. So I'll just plead with members to put something in place in this area.

I'm not saying let's not do it. I'll believe that competition will benefit, but I haven't seen it a lot. I haven't seen it in telephones, in Air Canada, in--

[An hon. member]

Fewer banks would be better.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

My colleague mentioned the issue about banks. I don't know if he heard the point yesterday when we had the presenters. Banks were sitting here saying, trust.... The banks are the perfect example. They sit here and say....

[The Chair, Conservative, Brian Pallister]

Thank you.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Okay, let me finish my statement and I'll conclude, if I can get Mr. Del Mastro's attention.

In fact this is a good example of why we need the protections in mortgage insurance. The banks sit here and say, “Don't worry, we'll make sure that no areas are left unaddressed and that there are no inequities”. They sit here, having totally left abandoned many communities—rural communities, inner-city communities. I have a good example. I'll tell you, in eight years, we lost every single bank branch in the entire north end of Winnipeg.

[The Chair, Conservative, Brian Pallister]

A point of order, Mr. Turner.

[Garth Turner, Conservative, Halton, ON]

We're way off topic here, and we all have limited time. So we're not just debating about bank competition at the moment; we're talking about mortgage insurance. I know it's a simile and a comparative, but you've made your point quite clear. I think we should get on to a vote, please.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Turner.

Mr. Turner has a point, Madam Wasylycia-Leis. I'd like you to get to your summation now.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

I will. I only mentioned banks, because it was some of my colleagues—

[The Chair, Conservative, Brian Pallister]

That's fine. Please proceed.