It’s been the same story for over a year now. The government of Canada sees a problem with HELOCs and home equity loans in Canada and so, they tighten up the rules a bit. Afterwards, economists and analysts praise the Finance Minister, while banks get in an uproar about how they’re unnecessary. Of course, why those banks get so upset is fairly obvious – tighter mortgage rules hurt their business. This is the case for Manulife, who now says their HELOC prodcut Manulife One could be in trouble with tighter HELOC rules.
Manulife is largely known in Canada for its health benefits and insurance programs, often offered by employers. But, they are also one of the fastest growing businesses in Canada, now offering savings and chequings accounts, and yes, mortgages and HELOCs. Now though, that last product is in trouble as the Finance Minister and the Office of the Superintendent of Financial Institutions might be making major changes.
You’d expect the bank to be up in arms about taking a hit on one of their most popular products; but Manulife’s reaction is one that might surprise you. Manulife Financial’s CEO, Don Guloien, said in an interview this week that the Manulife One product, “might be, very slightly, collateral damage in that process. We’ll take a look at the strategic plan for the bank and probably slow down the growth of it a little bit.”
And unlike others, who are saying Jim Flaherty just wants to get the dirt off his hands for when the whole thing goes bust, Mr. Guloien sees the purpose of what the government is doing, and even agrees with it. “What the Canadian government is doing is very resposible,” he says. “It hurts us a little bit in the short term, but it’s the right thing to do. The Finance Minister is very concerned about the unprecedented rise in housing prices.”
Mr. Guloien also sees similarities happening between Canada’s current housing market, and that of which happened in the States just a few years ago. “A lot of it is backed by home equity, and that is asking for the very same issues that have been experienced by our friends south of the border, and we should learn from that experience rather than trying to repeat it.”
The CEO ended the interview by saying that even if the new rules hurt Manulife One a little, it’s still a very good product that can help homeowners pay down their mortgages faster than if they chose a strictly conventional mortgage; and for that reason, the bank will continue to offer it. “We have the ability to modify the product and do some things,” said Mr. Guloien. “We’re not going to back away from Manulife One, it’s a very successful product. But there is a theoretical risk with any home equity line of credit that people can run it up to the max in stressful times. And the government is concerned about people overleveraging themselves on real estate, and that’s a legitimate concern. I actually think it’s great that they’re dealing with it, but it’s affecting all banks.”
