Finance Minister Jim Flaherty certainly stirred the pot earlier this month when he started calling on the different banks and lenders in Canada and telling them to increase their mortgage rates. He took a heap of criticism for the move, with just about everyone coming out of the woodwork to tell the Flaherty that such a move was not really his place. Now though, one organization – the CD Howe Institute – says it wasn’t only not Flaherty’s place, but he and Crown organizations are part of the problem.
“There is a slight irony that Mr. Flaherty is after the banks, when some of the crown corporations are worse offenders when it come to accumulating debt,” said Philippe Bergevin, senior policy analyst with the CD Howe Institute. And he says, not only are those organizations accumulating more debt than the banks, but one – the Farm Credit Canada (FCC) – has nearly as much debt on its own as all of the banks in Canada combined.
“In one decade, their share of farm debt has risen from 20 per cent of market share to 30 per cent,” said Bergevin. “That is almost as much as the combined debt of all of the banks.”
And Bergevin does more than simply state that the government has taken on too much debt themselves. He points out that the very role of the FCC makes the marketplace an unfair one, especially for mortgage brokers trying to find their clients farm mortgages.
“It is very difficult for brokers to match these offers; it’s unfair,” he says. “There needs to be a closer look at the lending practices of the FCC. It needs to become a public issue.”
Bergevin continues, giving specific examples of just how FCC’s involvement in the mortgage game makes it an incredibly unfair one.
“The FCC gets cheap capital by way of its federal backing, and pays no income tax,” he says. “That allows the FCC to be an extremely aggressive competitor in the farm and agribusiness lending, its pricing and terms. It offers low down payment loans, interest payment holidays, interest-only loans, permits rolling-over loan interest, sells loan life insurance and more.”
And Bergevin also left out some of the other perks the FCC enjoys while mortgage brokers still sweat it out trying to find their clients farm mortgages. Those include applicants not needing to re-apply when it’s time to refinance or renew, as well as lending against dairy quotas and green energy contracts.
When the CD Howe Institute brings this often-forgotten entity forward, it certainly does seem unfair that the Finance Minister continues to go after banks to lower their mortgage rates, ultimately only hurting the Canadian consumer in the end. Doesn’t it?