The right balance – A guest blog by Jim Murphy, President & CEO, Canadian Association of Accredited Mortgage Professionals (CAAMP)
Nov 19th, 2013 | By FCT
From time to time, the FCT blog will host leaders in the real estate and mortgage industry in Canada. We are honoured to host our first guest blogger Jim Murphy, AMP, the President and CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP).
I welcome the opportunity to participate in this blog.
Real estate and mortgages in particular, receive a lot of attention from the media. Following the financial crisis of 2008, and the mortgage meltdown south of the border, countries around the world reviewed their real estate finance regulatory structure to ensure that what happened in the US did not happen at home. Indeed many other countries were impacted by housing crises of their own including Spain and Ireland where an overbuilding in supply during good economic times was not sustainable.
Canada of course was different. We did not have the products the US did, we did not finance the majority of our mortgages the way the US did, namely by securitization, and we had an extensive system of mortgage default insurance that had served the country well. Despite this, the federal government has been active on all things regulatory when it affects the real estate finance sector and mortgages. They have done this for several reasons. One, concern over household debt levels and what the impact of rising interest rates would be when and if they do occur. Two, the lack of any increases to interest rates which would have moderated the market and three, to limit their own exposure and by extension the Canadian taxpayer to the real estate finance system.
The government has changed rules affecting the financial guarantee for mortgage default insurance four times since 2008. They have mandated a 5% down payment, eliminated 40, 35 and most recently 30 year amortizations and limited the amount that can be refinanced on a home as well as several other measures. This, together with other measures including governance changes to CMHC and capping federal government exposure to various funding programs, have had a significant impact on the real estate market and mortgage industry.
CAAMP, which represents the mortgage broker channel in Canada including lenders and insurers supported many of the earlier changes. However, we now believe that further changes are not required. Changes have affected a borrower’s ability to purchase, especially first-time homebuyers. CAAMP research showed that 17% of all homebuyers who qualified before 2010 would not qualify today primarily based on the elimination of the 35 and 30 year amortization period. Importantly, the government must find a balance between the concern over household debt and their own exposure with that of the important role that housing plays in the overall Canadian economy in terms of jobs and tax revenues. Also, data from CAAMP shows Canadians are and have been behaving prudently with their mortgages, making extra payments, taking five year fixed terms and building equity. In our view, signs of a housing meltdown which happened in other countries are not present here.
Housing plays an important role in the Canadian economy. It is important that we get the right balance and do not over correct.