With interest rates and house prices on the rise, some believe the country is headed towards a housing bubble, such as the one seen in the US in the mid-2000’s.
Added to those two factors is that more than 50% of recent new mortgages were approved with variable rate interest.
A clip of a January meeting of the Federal Standing Committee on Finance has surfaced recently which shows a concerned MP asking serious questions of Canadian Mortgage and Housing corporation, questions they were ill prepared to answer.
Romy Bowers, President and CEO of CMHC, the national housing agency, was unable to provide the total amount of mortgages which, if defaulted, would be passed on to the taxpayer.
She was in front of the committee and faced questions from MP Pierre Poilievre, the conservative party critic for finance.
Poilievre wanted to know what the total dollar value of insurance enforced at CMHC is at the moment.
Bowers provided a quick answer of $404 billion. Poilievre pushed the issue to get another number.
“Then what is the total value of guarantees? Under the National Housing Act, mortgage backed securities and Canada mortgage bonds, the total, please the number?” he asked.
The response given was $460 billion.
“So you add those two numbers up 404 plus $460 billion, I get $864 billion, is that the total value of the the amount of money the government is on the hook for, when it comes to backing up mortgages?” pressed the conservative MP.
Bowers admitted to some duplication in the number, but was unable, when asked, to provide the actual total taxpayers would be on the hook for if the market crashed.
So why is this important? Poilievre explained.
“Well, it makes me uncomfortable that we have hundreds of billions of dollars of unknown contingent liabilities, Miss [Bowers]. If people do default on their mortgages, your corporation then pays the default loss to the bank, and taxpayers could be on the hook for that money,” stated Poilievre. “The fact that you don’t know the total amount of guarantees that your government, that your organization is offering on behalf of taxpayers to our banks is problematic.”
He explains even more to Bowers in the video.
“If our housing prices simply went back to the level they were at in 2020, that would be nearly a 25% reduction in house prices. And if people defaulted on those houses, many would be underwater, so taxpayers would then have to pay for the default loss,” he noted, then shared with viewers his disapproval. “I would expect that the head of the corporation that is managing these liabilities and this risk for taxpayers would know the number and have them at fingertip.”
SaultOnline spoke with Poilievre in February about why he thinks the housing bubble may pop in Canada.
“Half of all mortgages issued in the last year have been variable rate. It’s dangerous, because when rates rise, their payments will immediately go up,” he told us. “The typical house in Canada today is $811,000, that’s up from $436,000 when Trudeau took office.” He also noted that almost 20 percent of all mortgages in the last year have been for 5%.”
He explains it’s actually worse than that, after you pay off your mortgage insurance, which is around 4% of your mortgage in most cases, you have only 1 percent equity in your home, meaning you have an $800,000 mortgage.
“Let’s say you took on a variable rate. And you did that because variable rate 1.6 is three (percentage) points below the inflation rate. In other words, a negative real interest rate you’re getting paid to borrow money right now,” said Poilievre. “But let’s say rates go up two points, as Scotiabank suggests they will, a two percentage point increase on an $800,000 mortgage is $16,000 in extra mortgage payments every year. Every year repeating into eternity.”
He is concerned most families with that type of mortgage can’t afford that increase and may default, leaving taxpayers on the hook for the amount of the mortgage.
“Let’s say that 1000s of people do that, all at once, prices then crash. And all of those folks with 1% down, that’s 1% net equity. They might be they might be underwater by $100,000, or even $200,000 on their mortgage,” he told SaultOnline. “That is to say their house could be worth $200,000 less than their mortgages. What happens then? We’re talking about a financial meltdown.”
In the end, he explains his concern.
“At the end of the day, the government’s capacity to bail everything out is is limited as well. Because what is the government going to do if there’s a massive meltdown? Go and try to borrow even more? What if there’s nothing? If no one will lend well, then they have to print even more [money], which will mean more inflation?” That isn’t the answer, according to Poilievre. He sees only one way out.
“The only way out is to quickly restore financial/fiscal responsibility quickly and the time is running out. We don’t have a lot of time before this whole mess comes crashing down on us.”
Stay with SaultOnline/ONNTV as we bring you both a statement from Terry Sheehan and another from the Provincial government in the coming days about their plans to attack the housing crisis.
If you have 20% equity you can get a 30 year mortgage
Who cares , they are just Political Distractions and does it really matter who’s at fault now, it’s done and guess who pays. You have to look at the Big Picture and it’s the future of Canada , it’s simple A Free Canada or Communism under Trudeau.
I really . really don’t think Canadians realize that if Trudeau wins the next election there is no more Canada, no more elections , no more freedoms , no chance ever of getting Canada back, just a DICTATOR running Canada . Do you really want your children growing up in Trudeau’s World. I the he-l don’t.
Rising interest rates isn’t going to cause mass defaults for the simple reason that mortgages can be EXTENDED. ALSO, with your built-up equity you can ditch the CMHC and take out a 30 year mortgage through a credit union. The American mass-default experience was foreseen because the entire system was corrupt. Approving a mortgage for a mansion to a security guard then selling off that mortgage to investors in unregulated derivative markets to unsuspecting investors…..it was a concerted effort to defraud those investors. Canada is heavily regulated so comparing the American experience to our system is overreaching. With so many options for mortgage holders there’s no possibility of a default. My mortgage is $645 on a $550k condo. When I renew in 2 years I will remortgage again and my mortgage will roughly be $450 per month – to put that in perspective a renter would pay $1800 to rent my place. I can’t sell for the simple fact that I can’t afford to rent – renting is outrageously expensive.
What this article fails to mention is that mortgage losses have been at an all time low for quite some time particularily with rising values. For years and years CMHC has pocketed record insurance premiums while paying out very few claims. Also what MP Poilievre fails to point out is that even when there are losses , it certainly does not mean that cmhc writes off the total balance owing , just the shortfall. A little research also found that there are approximately 5,000,000 active mortgages in Canada. Current statistics would indicate that less than 10,000 of those home loans are currently delinquent which represents a delinquency rate of .2% . If you look at what the current insurance premiums are that CMHC charges for residential mortgages it is not hard to figure out that CMHC is , and has been very profitable. Yes there has to be some fiscal responsibility in the future to make up for the monies that have been spent during the pandemic but MP Poilievre needs to look elsewhere and stop giving half of the story.
There is no debate , if you want Democracy and the Charter of Rights in Canada you vote PC, not perfect but they represent Freedom and Democracy.
Vote NDP or Trudeau you get Communism , No freedom and no Right.
NEWS UPDATE .. Trudeau doesn’t want to lose the control Covid-19 gave him. Trudeau is testing the water in the Senate for a Universal Income in Canada like the have in China. Sounds goods but just think of the personal information that you would have to give to get it , and what you to give up to get it. Like in China you will own nothing and be happy and subject to cancellation of your income if you don’t dance to Trudeau’s drum. Pure Communism.
If I recall correctly, it was Prime Minister Harper who brought in 30 and 35 year mortgages causing a flood of mortgages that homebuyers could scarcely afford.
And that caused the vast majority of homeowners to get Government backed Insurance (CMHC Insurance) for their Mortgages when getting a mortgage at the bank.
According to Mr. Poilievre in this article, that was about $436 Billion dollars when worth of CMHC Insurance when Prime Minister Harper lost to Prime Minister Trudeau in 2016.
I guess nobody thought to eliminate 30 and 35 year mortgages in order to save us taxpayers from banks giving out suspect mortgages backed by Government Insurance (CMHC Insurance) since Harper became Prime Minister back in 2006.
Now, 6 years after PM Harper’s humiliating defeat to now PM Trudeau, it’s $811 Billion we taxpayers are on the hook for if the housing bubble bursts from rising interest rates.
Which, again, Prime Minister Harper, and his Mini-me Pierre Poilievre, and they’re government caused.
And now, because he knows exactly where this problem came from, Pierre Poilivre’s SOLUTION is to elect the Conservatives???
What are you going to do MP Poilievre?
Give your Mortgage Broker buddies, and banks 40 and 45 year CMHC backed Mortgages for a perpetual stream of interest money until the next time there’s a threat that we taxpayers will have to pick up the tab?
MP Poilievre is a Mini Harper.
Stay far away from this guy. He’s nothing but trouble.
At least that’s my opinion. Hard right conservatives may have a different view.
Its all jacked up… if you elect the conservatives then there will be some type of mess and if you keep the liberals there are other problems.
Once again people blaming harper. Trudeau has been in office since 2015. We didnt have an inflation and housing crisis then. Mr Poilievre is our best candidate for prime minister and i fully support him. He will become prime minister next election. I also don’t think you have any idea about politics but then again you clearly support the communist liberal party. If the money printing doesn’t stop we will be living in poverty in no time.
I am not a partisan troll. I am socially progressive, and financially conservative.
Unfortunately for the hard right conservatives (socially conservative and financially conservative) Harper is to blame for this problem that Poilievre is intimately aware of – because he was part of the Harper Conservative team that created the problem that started creating the problem back in 2006 ( https://www.ratespy.com/history-of-mortgage-rule-changes-03255560 ).
Unfortunately for you, @Saultman, Harper and Poilievre are the ones to blame for at least $436 BILLION of this taxpayer funded CMHC Insurance debacle that Poilievre is now trying to profit from.
Check the link.
Plus, Trudeau did little to nothing to try to fix the problem during the last five years which has now resulted in $811 BILLION worth of taxpayer liability should the housing bubble burst.
I’m not sure what he could have done, other than eliminate every type of mortgage over a 25 year mortgage, and make the banks Insure their own mortgages; CMHC insures mortgages where less than 20% of the house price is applied as a Down Payment (i.e. CMHC Insures virtually all mortgages now).
The banks get off scot free in terms of liability if someone puts down less than 20%, and that person walks away from their mortgage.
The taxpayers pick up that tab.
Poilievre knows that because his Harper government caused that. Check the link.
Poilievre is a man with very bad ideas who cares nothing about people. Look at the way he treated this CMHC lady. 🙁
He didn’t even give her the courtesy of a heads up for the questions he was going to be asking.
The man is cruel, and he relishes it.
Anyone can see that based on his decades in Parliament.
That’s my fact based opinion anyhow, @Saultman. Perhaps your aspirational opinion will still not concur with mine. I do appreciate your optimism @Saultman. You’re a loyal foot soldier to be sure. 🙂
House prices only appreciate. In the unlikely event of a default the taxpayers are made whole from the proceeds of the sale of the home. Rising interest and shortened mortgage terms only serves to create a housing shortage – with less people qualifying for mortgages developers don’t build. This is precisely why there’s a housing shortage. We have shortened terms, tough stress tests, then we have cities demanding affordable housing units be incorporated in the application, and then landlords being prevented from evicting deadbeat tenants on account of COVID19. In one city alone 75% of developers left town. There’s just no way they can market the units when the units fees become a burden to market owners. Now we have literally MILLIONS of refugees entering Canada demanding housing when non exists. People then wonder why there’s homelessness. All of these actions by the federal government only serves to benefit owners like myself. Everytime a look the value of my home has edged up co considerably. I could retire decades before I qualify for a pension. So, the federal government is harming all renters and people experiencing homelessness….yet they hold themselves out to be the saviours. It’s just not true and their actions prove this point.
The 35 year mortgage availability was reduced to 30 years in March 2011…11 years ago this month.
The 30 year availability was reduced to 25 years in July of 2012. This was 10 years ago.
10+ or 11+ years ago, some people got 35 and 30 year amortization periods. 10 years ago, the national average house price was $369,000 (2012). Today it’s in the $800,000 range.
With more than 10 years to pay down, at extremely low interest rates, and vastly lower purchase prices, I don’t imagine we have anything to fear from those old 30 and 35 year amortizations in 2022. Anything left on those mortgages would be peanuts compared to sale price, even if house prices dropped to the early Trudeau years.
Then how, pray tell @Saultite, do you account for Prime Minister Harper being responsible for $436 BILLION of the $811 BILLION problem Harper-MP Poilievre is trying to profit from now?
And why, pray tell @Saultman, did Prime Minister Harper, and his loyal foot soldier MP Poilievre, have their 2009 Finance Department raise the insurance that CMHC can have outstanding to $600 BILLION in March of 2009 if he and MP Poilievre were sooooo…. concerned about us taxpayers?
Plus, Stephen Harper and Pierre Poilievre are cut from the same cloth as human beings as far as I’m concerned; they both seem like they do not like people.
Look at the way MP Poilievre pummelled the CMHC lady without giving her the courtesy of providing her with the questions he was going to ask her so that she could be prepared to give him the numbers he was looking for!?!?
MP Poilievre is just plain mean in my opinion.
Plus, he’s not a person I would EVER vote for, and especially not for dog catcher. Dog catchers have to have at least a little compassion.
And I’m a lifelong progressive conservative!!
We don’t have to look any farther than the war going on in the Ukraine to see what mean leaders are capable of.
Vote for Poilievre if you think this “tough guy” can solve your mortgage problems with solutions he’s not talking about other than to vote for the Conservatives???
The Conservatives are not going to give you any money for your Mortgage because they’re sick and tired of Trudeau handing out our tax dollars like it was candy.
So what are they going to do?
Are they going to force their rich Banking and Mortgage Broker buddies to Insure your Mortgages?
Well, that’s not something they’re willing to do.
So what is it, EXACTLY, the Pierre Poilievre
-led Conservatives are going to do to save us taxpayers from the CMHC Insurance debacle that you, MP Poilievre, and your buddy former Prime Minister Harper spawned???
@Saultite do you know?
Poor Canada if this guy gets anywhere near the reigns of power IMO.
Your comment above was
“ I guess nobody thought to eliminate 30 and 35 year mortgages in order to save us taxpayers from banks giving out suspect mortgages backed by Government Insurance (CMHC Insurance) since Harper became Prime Minister back in 2006.”
My comment showed that those 30 and 35 year mortgages were eliminated under Harper, and when.
You could still remortgage at 30 year terms through non-banks ie credit unions or private lenders. Simply ditch the CMHC insurance – 99% of holders have enough equity to be allowed to shed CHMC. And you’re correct…..most of us aren’t at all worried about rising interest. Rising interest only creates a greater housing shortage….it’s the new buyers that are being thwarted from buying.
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