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Why Mortgage Changes would be Bad

17 March 2012

There’s been a lot of talk lately about how mortgage rules in Canada need to be tightened once again. We even posted yesterday about one Queen’s University finance professor’s ideas on why it’s so important that Ottawa step in and make changes that would keep us from getting any farther in over our heads; and that professor, Louis Gagnon, isn’t alone in his thinking. There are many experts and analysts in Canada that think this is the only way to keep us from a crisis similar to the one the States saw. But each side has two stories and CAAMP, the Canadian Association of Accredited Mortgage Professionals, thinks that making the mortgage rules any stricter would be one of the worst things the government could do.

In a report recently released by CAAMP, they outlined all the ways in which tightening mortgage rules would have a negative impact on the Canadian economy; and they also pointed out how the government is looking at some of the issues the wrong way. One of those issues is CMHC and its current mortgage insurance cap. Some have pointed to the fact that the supply of this insurance has nearly run out, and believe that must mean that CMHC has had to insure way too many mortgages. On the surface, it might seem as though this is due to bad lending practices; after all, insurance is only needed for buyers that don’t have enough for their down payment. However, CAAMP said in their report to Ottawa, “The issue of lenders and the mortgage insurance ceiling has hardly anything to do with lending practices, but rather liquidity and capital requirements.”

The association of mortgage brokers also urges the government to look at the number of investment properties in Canada, saying that this is a market with huge differences between that of the U.S.’ just before their crisis. In Canada, says CAAMP, only 2-3% of the homes for sale are investment properties. Compare that with our neighbours down south, where the total percentage of investment properties for sale was 20% before the recession and you can see the huge difference. But, that might be nothing compared to what CAAMP says will happen if Ottawa really does make it even harder to get a mortgage. They say that it could make it near impossible for people to pay their existing Toronto mortgage, that it will have a crippling effect on the economy, and that it could even be enough to send us into a recession.

When you consider their stats, they might not be wrong. According to their report, 8% of Canada’s employment comes from the housing industry; and in the past six years alone this market has been responsible for 18% of the jobs created in the country. Should mortgage rules be tightened the housing market could significantly weaken, which could put many people out of work ,which would greatly lower consumer spending, and which would get us back to that recession they’re warning about.

CAAMP is a huge organization within Canada, and one that’s very influential in government decisions effecting mortgages. While everyone is so increasingly worried about the amount of debt we have, it’s important to remember that you can’t just tighten mortgage rules without it having a drastic effect on the entire country and the people within it. And maybe that’s not the immediate answer that many people seem to think it is.

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