Just when we thought that the Fla-rate drama was over. We don’t need to remind you about when Flaherty meddled in the mortgage rate business by calling Manulife and telling them to lower their rates. (And if we do need to remind you, please follow the above link. The entire thing is really just exhausting.) Well, it seems as though it’s not over. Scotiabank’s CEO has publicly taken aim at Flaherty, and he’s got some mortgage brokers backing him up.
It was on Wednesday, at the bank’s annual shareholders meeting, that Scotiabank CEO, Richard Waugh, stated,
“I understand why the finance minister is concerned about the Canadian economy, but I just philosophically don’t think government should be setting product pricing. Despite the difficulties of central banks to use interest rates, the alternative of trying to manage specific products or prices to me, is fraught with difficulty.”
He also went on to say that, while imprudent lending can lead to crisis, changing mortgage rates is not the way to go about preventing that from happening. The only way to prevent that is to ensure there’s not an excess of credit risks in lending.
“Volumes for mortgage brokers and banks will be affected, but I don’t see it as a credit event of any significance,” he says.
He also addressed some shareholders’ concerns that Scotiabank was also under the unwieldy thumb of the Finance Minister. He put those concerns to rest by saying, “not that I’m aware of.”
Mr. Waugh’s comments are getting support from an unlikely source – mortgage brokers. A group that’s known for disagreeing with this bank and many of its policies, many brokers are now stepping forward and saying that they applaud Mr. Waugh’s comments. Ian McSevney, a mortgage broker in B.C., was one of the first.
“I would have to agree with Mr. Waugh’s remarks,” said McSevney. “The markets are dictating the mortgage rates, albeit within the confines of the Bank of Canada’s rate policy. So the government is getting involved in product pricing is philosophically wrong. It would mean the government is interfering in the individual banks product pricing – which would be unfair to the mortgage consumer.”
McSevney also says that it’s not only unfair, it’s unnecessary. Banks make a lot of money. If they didn’t, they wouldn’t be offering their clients great deals.
“I too understand that Mr. Flaherty is concerned about the Canadian economy, as we all should be,” he says. “The government does have a job to do as a regulator and already works to regulate rates through the Bank of Canada’s rate policy. We have a pretty long history now of the use of securitization through mortgage-backed securities in the Canadian marketplace which ties mortgage rates to bond yields.
The banks simply would not be offering a rate to the Canadian consumer that they could not afford to offer.”
Also echoing the sentiment that markets balance, correct, and set themselves, is Bill Harries, an Albertan broker.
“I personally think that the finance minister should stay out of the industry pricing for mortgages,” he says. “I understand Mr. Flaherty’s concerns, but it’s an area that I don’t think that the government should get involved in and let the market price itself accordingly.”
Harries also voices a larger concern over another type of lending, something many of Flaherty’s critics have been pointing to ever since the Finance Minister decided to get involved in the mortgage rates offered by the banks – unsecured credit.
“As for unsecured credit, I think that the same lending guidelines used for applying for a mortgage should be used by all institutions for TDS ratios regardless of the type of credit, loans or credit cards approved,” he says.
But if the government isn’t going to hold the banks responsible, who is? After all, consumers are there to argue, perform boycotts, and disagree when a bank raises their fees too high (to a degree.) But what about if the banks are putting themselves and the economy in jeopardy by offering discounts to their clients that simply eat too much into their profits?
McSevney says that there’s no reason to worry about that. Because before the public ever got wind of it, there would be one group doing enough of the outcry – the bank’s shareholders. That one group that the bank is always responsible to, and the group to whom they must always report a profit.
“I think it would be up to the shareholders of the individual banks to complain if they were unhappy with the rates that were being offered, not the government,” he said. “The government has already done its part putting in place the benchmark qualifying rate.”
What do you think about Flaherty’s move, or the bank’s or brokers’ reaction to it? Has the entire thing gotten way too out of hand? Or did that happen the minute the Minister had someone from his office call Manulife to “communicate his displeasure”?
