Finance Committee on Feb. 8th, 2017

[The Chair, Liberal, Wayne Easter]

Okay, that's fine.

You have four minutes left, Guy.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

On this I would say the Minister of Finance actually consults regularly prior to budgets, to get information.

[The Chair, Liberal, Wayne Easter]

He does, in a general sense.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

It doesn't mean that the measures will be in there, but if he wants to include a measure in the budget, he might ask questions about that specific measure to some stakeholders as well. I think that's the point we're trying to get across here.

Quickly, especially for those who are involved in the Toronto and Vancouver markets, I guess it's too early right now to say what the consequences are in quantitative terms. Do you agree with this? Is it too early to say we have an impression? It might be efficient or it might not be efficient, but we can't really say at this point and we'll have to wait a bit.

Do we also all agree that those were two markets that were overheated? We don't even know if they constitute a bubble or not.

We've seen provincial measures in Vancouver—including a special tax for foreign buyers—that seem to have deflated the market, hopefully to a point where it might be seen as healthy. We'll see about that. In Toronto, I would say it's somewhat stabilized right now, but it hasn't decreased per se. Do you have a feeling that the provincial measures will actually be more efficient than the federal measures that were announced recently to try to address that situation? I'm just talking about those two markets, regardless of what happens in the rest of the country, because we all agree that the rest of the country is actually made up of different markets that will be impacted differently.

[Gary Simonsen]

Just speaking of the Vancouver marketplace, certainly based upon our data analysis, the market was already starting to slow down before any of the measures that were taken in B.C. How that would have played out is difficult to predict now, because those measures have been taken. Again, we're back to the importance of analyzing exactly what the impact is.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Before you answer, I just want to tell you where I want to head with this. The fact is, we are in a bit of a conundrum. We're seeing that provincial measures might be more efficient than federal measures, because they don't cover wall to wall. On your side, those regulations, CMHC banking regulations, are federal in nature, so what should the federal government do to ensure that there is no formation of real estate bubbles in some markets? How much power should be given and what powers should be given to the provinces to more adequately address those local markets and the decisions in those markets?

[Gary Simonsen]

I think it goes back to the earlier comment made about the collaboration among all three levels. When we look at Toronto and Vancouver, we know that supply is a big issue. That's not an area of federal responsibility; it's more at the provincial and local levels. We think there are some opportunities there for a collaborative effort to make sure that whatever policies are adopted federally, provincially, and municipally, they complement one another and do not compete with one another. We are very encouraged by that initiative. Number one, we would certainly suggest that this is a very important approach to take.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Would you say that this collaboration is lacking at the moment?

[Gary Simonsen]

I don't know. We know there have been two groups formed, but we have not been privy to the reports or any of the work that's been done. We're encouraged, however, that this initiative is taking place.

[Gary Mauris]

As Gary just mentioned a few minutes ago, back in April, Vancouver started coming off month after month. I think the tax on the vacant properties in Vancouver was very prudent. I don't even necessarily disagree with the foreign homebuyers tax. Certainly in those large urban centres, there is no question that they were driving up prices. I fully support the federal government working with its provincial counterparts to take a regional approach in markets as they become problematic.

Just to reiterate, from my perspective, I'm in a unique position. I'm not a lender. I'm not an insurer. I'm an originator and I can shift my business. I can send more of my business to the banks, and I have great relationships with them. I'm giving you someone who universally looks at almost 500,000 mortgage applications per year. I'm sharing boots on the street, real feedback. The changes made by this government were without consultation and were very quick. We in the industry all know that the government was attempting to solidify our Canadian housing market so that we would continue to be a country that worldwide markets look to with admiration. In this particular situation, I think they went a little too far.

[The Chair, Liberal, Wayne Easter]

We'll have to cut you both off there.

We have time for two more questioners, Mr. Sorbara and Mr. Albas.

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

Welcome, everyone. I believe this is the third session we've had on the housing market and we've heard some great testimony.

I'd like to make a couple of points before the question. First, in Canada we have a 69% home ownership rate, which is pretty good if you compare it with any G-7 country, or if you want to lump in a few other countries. We have a very high and healthy home ownership rate. We have a lot of people, about 40% of the market, who actually don't have a mortgage, which is another great thing. We've never had some of the lending practices that they had in the United States, such as NINJA loans, adjustable-rate mortgages, or collateral that was really never there. If you ever watched The Big Short , that's basically true.

[Gary Mauris]

Absolutely.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

What happened in that movie was basically true. I lived it and I saw it.

We have a very resilient housing market. But we also have CMHC, which is effectively backstopped by the Canadian taxpayer. So any government, Conservative or Liberal, needs to be prudent.

In my last session, I said, “Looking at the trends, isn't it prudent for any government, when CMHC is effectively backstopped by the taxpayers of Canada, to implement measures designed to improve the quality of indebtedness for borrowers going forward?” I think it is prudent for any government, be it on the Liberal side or in the past on the Conservative side, to do so. I continue to believe it and I think many of the measures that were introduced by the federal government, Liberal or Conservative—because the changes started under the past administration—are prudent and need to be put in place.

I want to make that remark, because I think it's important to be on the record. We're not trying to not have people enter the housing market. We just want to make sure that the level invested is manageable. We do have regional markets, I agree.

On the consultation point, I remember in my past life that the past administration made a big change to something called the income trust market. They announced it about 4:45 p.m., after the market closed, and that market basically collapsed. Income trusts, at the time, were a pretty popular thing for a lot of companies to do, issuing cash to shareholders and so forth, and the market collapsed.

The Conservative party broke that promise. They said they would never tax income trusts and they did. They didn't consult, particularly when they didn't tax the prices of publicly traded securities. It affects behaviour.

Consultation is important, I agree; I get it. But when certain measures need to be introduced, when there is an impact and when there will be an impact on market behaviour, individual behaviour, sometimes measures need to be introduced. So let's put this on the record.

I have one question to end this. Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

That's good.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

A lot of participants we've had have asked for a pause in further measures being introduced, whether risk-sharing or other measures. Who knows what they may or may not be? What timeline would we be looking at?

For the folks in Alberta, I hear where you're coming from. I grew up in a small town that was devastated by a pulp mill closure. The folks in Saskatchewan right now and in Newfoundland and Labrador are being impacted by the low commodity prices. My heart goes out to those families who are impacted, and our government is doing everything it can to get those people back to work and make sure middle-class Canadians have a good future in this country.

In terms of the pause, how long a pause would we be looking at?

[Gary Mauris]

I'll take that one.

I think a pause in the range of 12 to 18 months to review the existing changes would be prudent.

I want to comment on one of the comments you made. You talked about the high debt load of the Canadian consumer. About 73% of the Canadian consumer high debt load right now is mortgage debt, so 27% is outside debt: credit card debit, unsecured line of credit debt, auto loan debt. This is debt that is at a rate anywhere from four, five, six, to eight times the rate of their mortgage debt. Because we see so much activity, that is the debt in this country, when we see families stretched and not being able to put food on the table and looking to sell or refinance their homes, it's usually to retire their high interest debt at 16%, 18%, 19%, or 20%. I get it. It's not backstopped by the government. It probably isn't for this forum right here, but when I look at the disproportionate share of Canadian debt-to-income right now, much of it is that debt that, as I said, is five times higher than the mortgage debt. I'd like you to keep that in mind.

[The Chair, Liberal, Wayne Easter]

I'm going to have to cut you off there, Mr. Mauris, or we'll not get Mr. Albas in.

We have to go to Mr. Albas's question.

Mr. Simonsen, if you want to answer that pause question, try to fit it in with one of these answers.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

I want to quickly address the point about consulting and publicly traded companies and how that might impact....and that kind of thing. Most of us, at least those of us who were there on the call in Kelowna just before doing pre-budget consultations, heard directly—because Mr. McColeman asked specifically if they consulted—Finance officials confirm that they did not do a formal consultation. They said they would not call it a consultation, but they did discuss it with some banks.

Mr. Chair, for anyone to say that this is all about keeping that protection so no one gets an advantage from it, that's ridiculous. We heard that, and I would just refresh that in some people's minds.

Consulting can be a very good thing. Yes, we did take some measures after 2008, which, as many people pointed out to me, was the ultimate stress test. We heard from Ms. McDowell today. She says there's an 81% increase in unemployment in Alberta, and I think going from 0.26 of one per cent for default to 0.41 of one per cent shows there's huge resilience within the system.

For people to be saying this is about debt.... The prudence of the people in the business are what is giving us such a good system. Yes, it could be argued that some adjustments have not been well received by the industry. They have said themselves that they have never seen this.

I'm going to get right into my questions now.

First of all, we talked about refinancing and how many mortgage loan companies may not be in that market anymore because of the increased costs of a refinance. I've talked to a credit union. They've seen an uptick in second mortgages. Now, to me that's concerning. A second mortgage puts a person in a much more precarious state to achieve the same goal.

Mr. Mauris, since your mortgage brokers do about 39% of the business, have you seen anything?

[Gary Mauris]

Yes, you've nailed it bang on. Unfortunately these changes make it much more difficult for our monoline lenders, the lenders who actually develop and keep a competitive landscape. There's an inability to refinance, or if they can refinance, they have to do it at a substantially higher cost now. The biggest impact we see is the suspension of the ability to insure a portfolio. I can give you an example of what's happened because of that. On the secondary financing space, what we call the all-day mortgage space, so, second mortgages, private lenders, and mortgage investment corporations, three or four years ago about 3% of our overall national volume was done through these channels, and today it's 12%. It's growing very quickly. We're making it more difficult for Canadians. Our kids are out there just trying to retire some of that high-interest credit card debt. That's usually what they're refinancing their home for, or to maybe help their child go to university. They are actually going to secondary finance sources at rates or 8%, 10%, or 12%. It's actually costing them much more.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

People are still getting into debt but they are paying much more for it and it's putting them into a more precarious state because second mortgages are very expensive. Is that correct?

[Gary Mauris]

Yes.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay, so you would say that the refinancing policy has not achieved its goal. In fact, it's actually pushing people into more precarious positions. Is that correct?

[Gary Mauris]

Yes. The biggest thing this government could do is reassess and review that portfolio insurance. Just changing that one dynamic itself, going back and allowing portfolio insurance so that monoline lenders can provide refinancing, would make a tremendous improvement and a huge difference to all the competition in Canada.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay, I have a quick question. We had Carolyn Rogers from OSFI come in, and she told us that OSFI's policies are regionally neutral. It's my understanding that in the new capital requirements, they specifically use location in their formula. Is that correct?