Finance Committee on Jan. 30th, 2017

[Robert Martin, Senior Policy Adviser, Canadian Credit Union Association]

I can speak to a bit of it. We don't have the exact numbers, but we did some estimates based on 2016 approvals. We modelled what the impact of the October 2016 changes would have been on our books and the decline in it by about 37% nationally in the number of approved high-ratio mortgages. That's what we were estimating. It depends on which region you are in. It could be higher in the Lower Mainland of B.C., and of course, in Toronto and in Alberta, somewhat higher than that.

[Stuart Levings]

In answer to your question as far as actual approvals in 2016, again, they're down over 2015, the down payment rule change being the driver of that.

[Raj Grewal, Liberal, Brampton East, ON]

Perfect.

You mentioned the unregulated sector and how that could be a potential concern. Can you comment a little bit more on that and on how you think that could be a concern to the overall market?

[Stuart Levings]

This is anecdotal, but what we've observed is that as the mortgage insurance rules have tightened, more and more borrowers are being forced into what we would call the private banking space, not necessarily unregulated because there are the MFCs that are in a way regulated, but really into private banking.

What that means is that they're obtaining a first mortgage up to 80% loan-to-value that isn't insured and that then doesn't require the 25-year amortization or the interest rate stress test. They are going to a private lender to obtain another 10% or 15% for the remaining portion of their loan. That will be at a higher cost, but it's still reasonable to the consumer because it's the only way they can now afford a home.

Our view is that those borrowers represent good-quality borrowers who we were insuring all day long before the change. They are now being forced into this more expensive option simply because the interest rate stress test is very severe, and in our view, too severe.

[Raj Grewal, Liberal, Brampton East, ON]

My last question.... I'm sorry, it will be just 30 seconds.

[The Vice-Chair, Conservative, Ron Liepert]

Okay.

[Raj Grewal, Liberal, Brampton East, ON]

Thanks, Ron. You're a gentleman.

Is there data on how many second and third mortgages are on a property? If RBC, TD, or Genworth has the first mortgage on a property, but then the homeowner has a second mortgage on the property, I would conventionally assume those are more risky mortgages to be in. Is there data being collected on that?

[Alex Ciappara]

I certainly have not seen that data. That data is not available publicly, so the answer right now is no.

[Raj Grewal, Liberal, Brampton East, ON]

But technically it would be through PPSA searches, so the bank would know if somebody took out another security on their security.

[Alex Ciappara]

Yes, probably, but I'm not sure if I've seen that aggregated. I don't know if anyone has really taken the time to do that and taken, sort of, an economy-wide, financial market-wide perspective of that.

[Raj Grewal, Liberal, Brampton East, ON]

Get Robert to do it.

[Stuart Levings]

There is reporting. The credit bureaus do report when there is a mortgage so you could, to Alex's point, look through that, but there has been no aggregation on that data at this point to my knowledge either.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, gentlemen. I really appreciate it.

Thank you, Mr. Chair.

[The Vice-Chair, Conservative, Ron Liepert]

Thanks, Mr. Grewal.

We'll deduct that time from Ms. O'Connell.

We'll move to Mr. McColeman who, during his former time as a member of this committee, actually proposed the motion that we're examining here tonight.

Mr. McColeman, you have 10 and a half minutes, like Mr. Grewal had.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I was going to ask, do I get his extra time?

To our representatives from Genworth, what's your overall view of CMHC's mortgage risk portfolio?

[Stuart Levings]

I would say that portfolio is of a high-quality nature, much like ours. The reason for that is that the regulator has been very active in this space for some time now and more recently, a couple of years back, introduced something called B-21, which has really helped to converge all levels of mortgage insurance underwriting to the same standard, in addition to B-20, which was rolled out for lenders. It has really raised the bar on mortgage underwriting as a whole. We can't really say that there are a lot of material differences between the portfolios of the three mortgage insurers.

[Phil McColeman, Conservative, Brantford—Brant, ON]

It seems to me the government wants to off-load some risk, so it seems to me that what is perhaps underlying some of their portfolio is the fact that maybe we have too much risk applied to what could happen in a market disaster to the taxpayer. I'll just make that as a comment.

Mr. Hogue, you were introduced by your colleague as being an expert in the housing field. When you look at affordability, when you look at first-time homebuyers, when you look at the profile, if it was a pie chart like you see on the gas pumps of what the costs of a new home are in terms of builder input, materials, labour, land, development charges.... I've made my own pie chart: land, labour, materials, financing costs, profit, and the last one is government-imposed regulation, fees, and taxation. What is the percentage of government fees, regulation, taxes, and imposed fees?

[Robert Hogue, Senior Economist, Royal Bank of Canada]

It probably depends on which jurisdictions you're talking about.

[Phil McColeman, Conservative, Brantford—Brant, ON]

An average jurisdiction....

[Robert Hogue]

I've seen numbers of probably 15% to 20%.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Fifteen per cent to 20%.... I've been told by the home-building industry that it's more like 25% to 40%, depending on the jurisdiction.

When we talk about people wanting to get into the market, first-time homebuyers, and get insured, and they come to you.... The price of a house in my jurisdiction, Brantford, Ontario, is being influenced by the GTA prices that are now filtering down through Hamilton, Oakville, Burlington, Ancaster, and Brantford. We're an hour away from Toronto and you see the huge spike in prices. Every spike in price, would you agree, as a panel, just knocks a whole lot of people out of the market. Is that correct?

[Stuart Levings]

That is absolutely correct. One of the issues we've been facing all this time is that affordability is eroding as prices get knocked up—starting in the cities, whether it's Toronto or Vancouver, and then effectively filtering out through neighbouring suburbs as people drive further and further to be able to find something they can afford.

[Phil McColeman, Conservative, Brantford—Brant, ON]

What governments do—all three layers but more the upper two tiers—is take hot markets like Vancouver and Toronto and say, “We have a problem. It's too hot; we have to cool it down,” so they bring in the rules and regulations that you want them to take a pause on doing any more on. Is that correct? But it's specific to those markets.

What's your view in terms of how government policy should react to hot markets like that and not affect the people who are building affordable housing right across my province of Ontario—four, five, or six houses a year—and building in their own local communities? They are dealing with a whole different market than those, but governments put a one-size-fits-all regulation in place. Does anyone want to jump on that one and make a comment?

[Stuart Levings]

I would agree that the issue we are facing is that the measures introduced are trying to target those two cities but are national by nature. The impact is felt oftentimes elsewhere and not in those cities, because they are targeting first-time insured buyers who are very modest players in those two big cities that you're talking about.

Our view is that there really is a need to think about levelling the qualifying criteria between the insured and the uninsured space, the uninsured space being where today a borrower can get a 40% larger mortgage than an insured borrower can get with the same income. That's part of the problem.

[The Vice-Chair, Conservative, Ron Liepert]

I think Mr. White wanted to—