Mr. Speaker, regrettably the hon. member for Chambly significantly weakens his debate for his private member's bill when he makes the far reaching and one might say ridiculous argument that his bill did not win three hours of a debate in this place because Liberals would be embarrassed by his act to amend the Interest Act.
I remind the hon. member opposite that there have been a number of private member's bills introduced by thinking, backbench government Liberal members which run counter to the suggestions of a minister; but still received three hours of debate and a vote. The most recent that I can recall was the private member's Bill C-226, an act to rescind section 745 of the Criminal Code which received three hours of full debate in this place and carried on a vote by the members of this place.
On the matter at hand, I consider it a privilege to speak to Bill C-273, an act to amend the Interest Act. Let me begin by commending the hon. member for Chambly for his well intentioned effort on behalf of Canadian mortgage borrowers.
The bill before us calls for changes to section 10 of the Interest Act. It only calls for the words "12 months" to be substituted for the words "five years" in two places in that section.
At first sight this appears to be a small change but I am concerned that what may seem like a small change could have far reaching consequences. I am worried that what on the surface appears like a consumer friendly improvement may in practice be quite the reverse. If this legislation were to pass mortgage financing for Canadians could become less available and mortgages could be higher and the range of financial instruments available to Canadian borrowers and savers could be reduced.
I want to demonstrate to my parliamentary colleague opposite why such a simple change would have negative consequences. The difficulty is that this bill could inadvertently hamper the flow of funds into the mortgage market by increasing the risks associated with mortgage lending. Hon. members may recall that section 10 of the Interest Act provides for a penalty equivalent to three months interest in the prepayment of the outstanding principal after five years on conventional mortgages with terms greater than five years.
The bill under consideration, this bill, would extend these same provisions; that is, a penalty of three months interest for
prepayment of outstanding principal after only one year on mortgages with terms greater than one year.
As hon. members and many Canadians are aware, long term mortgages are uncommon in Canada. The vast majority of mortgages in this country are issued with terms of five years or less.
One might ask why this lack of long term financing? Unfortunately the prepayment penalty provision in section 10 of the Interest Act is a real factor. This has been recognized by consumer associations, financial institutions, as well as the construction and real estate industries.
Now we have today's proposed legislation which could compound, not improve problems with timely mortgage financing because by adopting Bill C-273 we would risk similar results in the medium term mortgage market. Prepayment penalties for short and medium term mortgages are usually based on the present value formula which compensates the lender for differences in rates which would apply. This amount may be more or less than the three-month penalty proposed by the bill.
We have to recognize the cascading effects such a problem would create. Nervousness about such losses would effect the availability of not only mortgages but also medium term GICs. In turn, the resulting less efficient, smaller mortgage market would have negative implications for the construction and real estate industries.
Let me reiterate. I understand this bill has been put forward with good intentions, that it was tabled with the welfare of consumers in mind. However, in deciding whether Bill C-273 should go forward to committee, hon. members must bear in mind the unintended but adverse consequences which could flow from this bill.
In summary, these consequences include reductions in the choices that will be available to Canadian consumers in their capacities as mortgage borrowers and as savers, increases in the cost of mortgage financing, reductions in the availability of medium term mortgage funds, and adverse spill over effects on the construction and real estate industries.
The hon. member for Chambly does, however, by introducing this bill, underline the need for further consideration of how best to provide Canadian consumers with the opportunity to prepay mortgages in a fair and equitable way.
I understand that officials are reviewing this issue so that we may very well come back to it in a very short period of time.