Good afternoon, Mr. Chairman and honourable members, ladies and gentlemen. Thank you very much for the opportunity to again appear before this committee. We are very pleased to present our members' concerns and perspectives and recommendations to the Standing Committee on Finance in the context of the 2018 pre-budget consultation process.
The Appraisal Institute of Canada has more than 5,400 members who provide unbiased opinions of value on residential, commercial, and all other types of real property. Our members are university educated and prepare their work in accordance with our “Canadian Uniform Standards of Professional Appraisal Practice”. As a self-regulatory body, we have a strong focus on consumer protection. We maintain a robust disciplinary process and offer a mandatory professional liability insurance program to help protect consumers.
To begin with, we would like to respond to the committee's question of what federal measures should be taken to help Canadians be more productive. There are three measures, in fact, in our mind.
The first is the application of OSFI B-20 guidelines to all mortgage-lending institutions.
The second is mandating stronger valuation fundamentals for real estate-based investments offered to retail investors.
The third is enhancing financial literacy amongst Canadians.
Regarding the application of B-20 guidelines to all mortgage-lending institutions, we know that the majority of Canadian mortgage lending is still being done through federally regulated lenders, but the market share of non-federally regulated lenders continues to grow. Recent data from the Department of Finance showed that the market share of unregulated lenders grew from 6.6% in 2007 to 12.5% in 2015. We believe this trend will continue.
The reality is that, despite initiatives to moderate the market, there are still many Canadians who are desperate and determined to enter the housing market. If borrowers are turned away by a federally regulated institution, they will often turn to other lenders to secure funding. Unfortunately, there is limited information on the full scope of who these lenders are or what their mortgage underwriting policies may be. Put another way, there is a growing share of the market that is not necessarily competing on the same basis and for whom the same regulatory oversight may not apply. This scenario, in our opinion, is a potential risk to our financial system.
We do know of non-federally regulated lenders that apply very stringent underwriting approaches, both in terms of borrower qualifications and collateral evaluation. But we are also aware of, and are concerned with, those that do not apply this rigour and extend a mortgage in much higher risk scenarios.
B-20 has established an incredibly sound framework for underwriting that requires not only an assessment of the borrower's capacity and willingness to repay but also a commitment to strong valuation fundamentals. As we have seen in other countries, the absence of this type of balanced and consistent approach can have a significant impact on the consumer and on the real estate market as a whole.
AIC, therefore, recommends the expanded application of B-20 guidelines to any and all organizations providing mortgage financing. We believe this will help level the playing field and will help to further stabilize the market.
Second, AIC is concerned with the recent emergence of a range of real-estate backed investments including syndicated mortgage offerings targeted at retail investors. While these types of investments present themselves as an interesting opportunity for retirees or those nearing retirement, we are concerned that these investors may not truly understand the inherent risk associated with the investment and that the report value of the property securing the investment may be inaccurate. We believe that on-site appraisals carried out by qualified professionals are the most effective way to determine the true market value of a real estate asset securing this or any other type of investment. Investors and regulators should ensure that these investment opportunities are properly vetted and that the necessary due diligence and risk tolerance and collateral valuation has been carried out.
Third, there is a need to enhance financial literacy in the areas of mortgage lending. Although governments proactively educate Canadian consumers on issues relating to financial literacy, there continues to be confusion within the marketplace on the full range of fees associated with mortgage financing and re-financing, as well as the roles of various professionals involved in the transaction. A disclosure of all fees incurred as part of obtaining a loan should be a mandatory requirement for all lending institutions, so that Canadians better understand the financial commitment they are making. This includes both the appraisal management fee and the appraisal fee.
With regard to the committee's second question of what federal measures would help Canadian businesses to be more productive and competitive, for our members the need to access reliable and affordable real estate data is essential to complete their valuations of real property, which so well protect lenders and consumers.
The creation of a framework for federal housing statistics and a national property registry are initiatives that AIC welcomes and supports. While this data will be invaluable to governments as they develop effective housing policies, it will also be of great benefit to the industry.
We therefore recommend that the national property registry be fully accessible to professional appraisers and to all other real estate professionals.
Mr. Chairman, honourable members, we are privileged to have been invited here today to share the perspectives of our members. We would be pleased to respond to any questions or comments you or your colleagues may have.
Thank you.