Evidence of meeting #71 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.

On the agenda

MPs speaking

Also speaking

Evan Siddall  President and Chief Executive Officer, Canada Mortgage and Housing Corporation
Steven Mennill  Senior Vice-President, Insurance, Canada Mortgage and Housing Corporation
Michel Tremblay  Senior Vice-President, Policy, Research and Public Affairs, Canada Mortgage and Housing Corporation
Rob Stewart  Associate Deputy Minister and G7/G20 and Financial Stability Board Deputy for Canada, Department of Finance

3:50 p.m.

Conservative

Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC

I would simply point out that when you have the shock going through the international finance system and people aren't sure about what anything is going to be worth, that is a stress test versus an orderly rise.

People know that interest rates eventually will go up and they will make allowances for that. I would simply point out that the practical models we've seen and the behaviours of our moderating institutions here in Canada show that the market was quite capable and resilient, and it was due to continued efforts to make sure that the market itself priced risk.

3:50 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

I would just say it's my job to not be complacent about that.

3:50 p.m.

Conservative

Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC

What you're saying is that it's your job to push things, even though all you can do is point to a macroeconomic model versus actual experience.

3:50 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

It was the evidence of 46 prior economic crises. That's real data, as opposed to an economic model. I'm happy to share that data with you.

3:50 p.m.

Conservative

Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC

Yes, I would appreciate that. Thank you.

3:50 p.m.

Liberal

The Chair Liberal Wayne Easter

Okay, thank you both for an interesting exchange.

Ms. Boutin-Sweet, welcome.

3:50 p.m.

NDP

Marjolaine Boutin-Sweet NDP Hochelaga, QC

Thank you, Mr. Chair.

I want to thank the witnesses for being here today.

I'll start by talking about risk sharing in the case of mortgages. At this time, the government assumes all the risks. The issue at stake now is lender risk sharing. It's interesting, but I want to know whether you think lenders could share part or all these risks with consumers. In other words, could this increase the mortgage rates of banks?

3:55 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

I'll respond in English.

3:55 p.m.

NDP

Marjolaine Boutin-Sweet NDP Hochelaga, QC

That's fine.

3:55 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

First of all, the Department of Finance is leading the consultations on lender risk sharing. Those are going on right now, and it will be for the government to decide where that goes. Our analysis of potential risk sharing, as has been presented in the consultation papers, is that there could be a modest increase in mortgage rates in the neighbourhood of 10 to 50 basis points, so 0.1% to 0.5%.

That depends on the circumstances, but I would describe it in the following way. If the risk to mortgage insurers goes down, then the capital we need to protect against that risk will go down; therefore, the premiums that we will charge will go down and that risk and capital and rent, or premium, will go up on the part of lenders. In the large part, it's an in and out; it's a wash.

We account for some friction in the way bank capital is calculated relative to how capital is calculated for mortgage insurers, and we think, on net, it would be in the neighbourhood of just less than half a percentage point.

3:55 p.m.

NDP

Marjolaine Boutin-Sweet NDP Hochelaga, QC

If I understand correctly, interest rates could increase slightly. However, the insurance rate could also decrease a bit to compensate for everything.

3:55 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

Yes, absolutely. That's correct.

3:55 p.m.

NDP

Marjolaine Boutin-Sweet NDP Hochelaga, QC

I know the changes were implemented only four months ago. However, since October 3, have you been able to see the impact of the government's changes on first-time homebuyers? I'm not talking about the Vancouver or Toronto markets, which are exceptional cases. However, I want a general idea. Do you already know how this will affect the market, especially for first-time homebuyers?

3:55 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

Yes, particularly among first-time homebuyers.... It's a little early yet to see. There's some seasonality in our results, but I don't want us to avoid the question. I'll refer the question to Steve Mennill, my colleague, who runs our insurance business. I will say that we had expected some slowdown, and in terms of what I had seen going into it, it's not even quite as bad as we'd thought. The reason is that our forecasts had assumed a full delay of economic activity, as opposed to a change in behaviour. If somebody purchased a smaller house but still participated in the market, that would offset the potential decline.

Steve, just give some observations from what we've seen in our business.

February 13th, 2017 / 3:55 p.m.

Steven Mennill Senior Vice-President, Insurance, Canada Mortgage and Housing Corporation

We've certainly seen some modest declines in the volumes that we are underwriting, mostly for first-time buyers, in the order of a 15% to 20% reduction in those volumes. That is simply because borrowers who were near the top of that permissible debt service range are no longer able to qualify due to the stress test.

3:55 p.m.

NDP

Marjolaine Boutin-Sweet NDP Hochelaga, QC

Are you talking about a decline in the number of home purchases? What is this decline exactly?

3:55 p.m.

Senior Vice-President, Insurance, Canada Mortgage and Housing Corporation

Steven Mennill

It's about 15% to 20% of overall volumes. It's not an extremely large number nationally. Over time, we also expect that borrowers will start to adjust their expectations and will be able to purchase houses that are a little bit lower cost and lower value. Therefore, they will have a smaller mortgage and will still be able to enter the home ownership market.

3:55 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

Or, if I may say, save for another year or two and buy those same homes. It would be a deferring of that economic activity, as opposed to an elimination of it.

3:55 p.m.

NDP

Marjolaine Boutin-Sweet NDP Hochelaga, QC

Okay.

As I said earlier, you have the results after four months. Do you intend to come speak to us again about the results after six months or one year? What would be a good length of time to determine whether it really worked?

3:55 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

I think we need a year to have a complete picture of the situation.

Because of the seasons we would want to go through one full year.

4 p.m.

NDP

Marjolaine Boutin-Sweet NDP Hochelaga, QC

Okay.

It was said earlier that personal debt has been increasing for a number of years. I had a figure of 165%, and you mentioned 167%. That's a lot. Borrowers are less able to make their payments. According to the “blues” of the last meeting, 72% of the debt consists of mortgages. It may have been you, Mr. Tremblay, who mentioned this the last time.

The measures have been in place for only four months. Do you think they're helping to improve things with regard to this issue? Do you see differences from province to province?

4 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

Yes, the measures have produced good results.

There will be a difference in different provinces to the extent of higher indebtedness. For example, Alberta has comparatively higher levels of debt than other provinces. I think Calgary, Vancouver, and Toronto have higher levels of debt than other cities. Compared with Ottawa, for example, we would see differences. As I said, we'll just wait and see how that plays out over the next several months.

4 p.m.

NDP

Marjolaine Boutin-Sweet NDP Hochelaga, QC

However, you haven't yet been able to assess the impact on people's personal debt. Is it too early to do so?

4 p.m.

President and Chief Executive Officer, Canada Mortgage and Housing Corporation

Evan Siddall

Not exactly, no.

I know we're not solving for an outcome. We're just making sure that we are, on behalf of the government, controlling the growth in personal indebtedness. The trajectory it's on is a function of so many factors—low interest rates, income growth, job creation, immigration—not all of which, of course, is within anyone's control, so we think it's our responsibility to not pour fuel on that fire.

4 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you both.

I will just come back to Mr. Mennill for a minute. You mentioned a decline of 15% to 20%. To me it wasn't clear on what. Is that 15% to 20% for first-time homebuyers? Could you just be a little more clear on that?