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The Fla-Rate Drama Continues

22 March 2013

You’ve gotta wonder whether or not Finance Minister Jim Flaherty is regretting his decision to let Manulife in on his “displeasure” over the fact that they dropped their rates to rock-bottom 2.99 per cent for five-year fixed rates last week. Ever since he had a spokesperson from the Minister of Finance phone them last week, Flaherty has faced severe backlash and criticism. Now adding to the chorus of voices saying that Flaherty’s opinions are misguided are a former  chief economist, as well as those in the mortgage and banking industry.

It was former TD Chief Economist and Department of Finance analyst, Don Drummond, that spoke with CTV News on Wednesday. He reiterated what we also said yesterday, about how Flaherty has many tools at his disposal, and messing with mortgage rates shouldn’t be one of them.

“It actually perplexes me, the actions by the finance minister,” said Drummond in the interview. “If the finance minister is worried, there are all kinds of direct levers he has, that he has exploited recently.”

He too, says that contacting lenders and telling them to increase their rates isn’t one of them.

“I get the concern of the housing bubble. I get the concern of the debt,” he continued. “But 2.95 per cent doesn’t seem particularly low, especially when you consider that the banks back up their mortgages with bonds. You take a five-year mortgage that is backed up by a five-year bond that pays 1.7 per cent. A typical mortgage is 2.99 – that is a nifty mark up.”

One mortgage broker, with Paragon Pacific Mortgages, says also that Flaherty is missing the mark. That’s Scott Dawson, who says that these rates actually need to be posted more often, and by more lenders, so that the ones that are available are filled with IRDs and penalties, such as they often are now when these specials are posted.

“Jim Flaherty needs to stay out of banking,” Dawson said when appearing as a panelist on “We need real posted rates to better protect the client from IRDs and penalties.”

That’s the case with the rates that BMO offered, when they first started the whole low mortgage rate debacle to begin with. It’s a good rate, yes, but it comes with restrictions such as closed conditions that don’t allow for the borrower to move their mortgage, or even refinance. Dawson believes that these are the real concerns for consumers; but even still, it’s not Flaherty’s place to do anything about.

Dawson also wonders why Flaherty chose to focus on Manulife. While Flaherty had stated that he had contacted BMO when they dropped their rates, it certainly didn’t make the news the same way it did when he, or rather a spokesperson, phoned Manulife on Monday. And, as brokers have been saying ever since news of Flaherty’s phone call broke, many banks had their rates posted low even before then.

“I don’t know why they are picking on Manulife. I mean, the rates posted by ING were 2.98 even before BMO listed at 2.99,” Dawson says. “But really, it isn’t the rate that is gonna kill you as a homeowner – it is the penalties from those deals signed by clients at a lower rate, then who are stung down the road by IRD when they try to refinance or move their mortgage.”

Just days after such a phone call was made, and it seems as though people can’t stop talking about it. And if you’re on the receiving end, they’re certainly not saying too much that’s good. Yes, you certainly have to wonder if Flaherty regrets ever getting involved this directly with mortgage rates.

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