Evidence of meeting #68 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was changes.
A video is available from Parliament.
7:15 p.m.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Has it changed in a way that we're now comparing apples to apples when we're taking a look at credit scores today, as opposed to credit scores 10 years ago or when I got into the market in 1995?
7:15 p.m.
President and Chief Executive Officer, Canada Guaranty Mortgage Insurance Company
I would say for the purposes of comparison that it still is apples to apples.
There have been nuances, changes. There may not have been the same degree of payment history for your cell phones 15 years ago that has now been incorporated into the scoring model. The level of sophistication continues to improve. However, I would be remiss if I didn't remind the committee that as a result of the various interventions and overall industry tightening, the quality of that first-time homebuyer has never been stronger.
7:15 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Thank you.
I think we've heard testimony from all of our witnesses today, and certainly from other witnesses and other concerned people, that there really isn't any such thing as a national housing market, or that a national housing market is a collection of local markets with local factors and local challenges. The consternation and hand-wringing around housing seems to revolve around two markets in Canada. However, the most recent changes to mortgage qualification have been across the board. As was already asked by my colleague and established here to have been done, it would appear that was without any consultation to the largest non-bank lender in Canada, and one of only three providers of mortgage insurance.
I'd like each of you to quickly comment, and I would like you to be quick because I have a follow-up question. Are there not ways that for local concerns over local markets a different approach could have taken by the department?
7:20 p.m.
Chairman and Chief Executive Officer, First National Financial
That's a tough question to give a quick answer to.
I suppose you could have a bifurcated market with various top-up and loan amounts that would be insured, as was the case 20 years ago.
7:20 p.m.
President and Chief Executive Officer, Canada Guaranty Mortgage Insurance Company
I think it's very challenging, from a national perspective, to have a national policy. I would certainly much prefer to see regional solutions.
7:20 p.m.
Government Relations and Policy Advisor, Canadian Home Builders' Association
The application of rules for houses that are over $500,000 would help the regional diversification, as well as first-time buyers who are typically below that level.
7:20 p.m.
President, Nova Scotia Home Builders' Association
I would have to agree with Jason.
There are 34 prominent markets in Canada, and this rule was done to cool down two. The other 32 markets are suffering.
7:20 p.m.
Chief Executive Officer, Nova Scotia Home Builders' Association
It's like taking a sledgehammer to crack a nut; we're applying it to everyone.
I find it really difficult too. Without the regional differences, we suffer, and not just in Atlantic Canada but all the other markets outside of the two areas.
7:20 p.m.
Conservative
7:20 p.m.
President, Canadian Home Builders' Association
No, I'm fine. Jason has answered.
7:20 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
With regard to the stress test, for which we've had mixed reaction, and some are perhaps more concerned about the result of it than others, there was a time—and I was in the mortgage industry for over 20 years—where the debt service ratio requirement was different for the first-time homebuyer. For many years, CMHC had a higher threshold, in recognition that a first-time buyer was likely at a stage of life where they're probably willing to struggle to get that initial toehold in real estate and are able to grow into that, and are likely to have increased incomes.
Would perhaps either a debt service ratio that could be adjusted for first-time homebuyers, to protect that group, or to look at regional issues and perhaps have regional qualifications to deal with the regional concerns that Canadians have...?
7:20 p.m.
President and Chief Executive Officer, Canada Guaranty Mortgage Insurance Company
I take the view that when you think about debt servicing ratios the stress test serves the same purpose. It's a bit six of one and half a dozen of another. Whether you pick the stress testing or you work on debt servicing ratios, it achieves the same output. I think the challenge when you think of some of the solutions that are national in scope is that it just doesn't work for half of the country, if not more than half, and it's very challenging.
7:20 p.m.
Chairman and Chief Executive Officer, First National Financial
If you're looking at debt stress, I think I'd have trouble saying that if you're putting the debt stress in, if you think that's the appropriate thing to do, segmenting out part of the country is not appropriate. Getting back to that previous answer, I think that maybe you should have different loan limits for different parts of the country, reflecting the fact that the average house price in certain areas is different.
7:20 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
That is another thing that has existed. We've had that historically, as CMHC used to have different ceilings for different markets, and we've gone away from that in trying to make things universal.
Am I out of time, Chair?
7:20 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Then I'd like to get back to the issue of competition and quickly ask Mr. Smith this question.
As the largest non-bank lender, you've mentioned a concern about your ability to compete with the chartered banks. If you can't compete with the chartered banks under these rules, how would one of your competitors in the non-bank so-called monoline lending space be able to compete, even with you or with the banks?
7:20 p.m.
Chairman and Chief Executive Officer, First National Financial
I think it's going to be very tough. We have other independent sources of funding that are not available to our smaller competitors. I think it's going to be very tough. Certainly—
7:20 p.m.
Chairman and Chief Executive Officer, First National Financial
Yes, it's reducing choice. Certainly, the recent mortgage insurance changes are a revolutionary change in the Canadian mortgage landscape. It's something we haven't seen in 30 years.
7:25 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Will there be higher interest rates, then, for borrowers?
7:25 p.m.
Conservative
7:25 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you, Chair.
Welcome, everyone. Thank you for travelling from Toronto and Halifax, if I'm not mistaken, and possibly Ottawa.
After the first eight hours of the housing study, I think a couple of common themes have emerged. I would say, first of all, that the Canadian housing market is based on a series of regional markets and there is no uniform market across the country; that a number of participants would like a pause in the measures, on any incremental new measures; and that risk sharing is of grave concern to some participants. I'm not saying that I agree or disagree. I'm just saying that these are the themes I've seen.
Also, CMHC, proceeding with an original mandate to where it is now, looking at the 69% home ownership rate in Canada—I think it's in the high sixties—has largely been successful, especially for encouraging home ownership in Canada and allowing new entrants to enter the home market. Finally, Canadians are great customers, i.e., we're great credit. We work hard. We save. We want to save for our kids and for the future of this country. We want to invest, pay off our mortgage, take a vacation when we can, and have faith that the stewards of the economy and our regulatory organizations are doing a good job, which in large part I think they are.
I do agree with Mr. Charles and Mr. Smith that a lot of the changes that have been enacted.... You can quibble about the stress test being 50 basis points or 100 basis points higher than it should be, but that's not really the issue. The issue is ensuring that Canadians have access to the home ownership market to buy a house.
My one question is with regard to the pause. Specifically, Mr. Smith and Mr. Charles, both of you gentlemen have been in the housing market for a very long time. I'm not trying to date you. I'm just saying that I know you're very well respected within the industry.
How long do you think before we'll have data that we can see on a qualitative basis to determine what exactly is going on?
7:25 p.m.
President and Chief Executive Officer, Canada Guaranty Mortgage Insurance Company
As I may have mentioned earlier, I think we want to see at least a full year going through the cycle to truly understand the impact. I have early data, but that's really just two months' worth. That is a relatively modest sample size in terms of the impact. I would encourage members of the committee and the government to take seriously that pause, as you position it, to reflect. Again, it's the cumulative impact of the changes, not necessarily one specific aspect.
