When BMO started offering deeply discounted mortgages, not just once but twice already this year, many of the Major Six banks in Canada were quick to follow. The first time, many backed out of their deals early because of falling profit margins and increased bank bonds. The second time most of the banks stuck true to their offer, maybe because of bad press they received from pulling them early, or because they weren’t faced with the same challenging market conditions. Through it all though, there was one bank that proved it’s slow and steady that wins the race; and that bank is the National Bank of Canada.
The National Bank was one of the banks that hung back during the Vancouver through to Ottawa mortgage wars – both times they went on, and the bank;s chief executive officer, Louis Vachon, explained why in an interview on Wednesday. It’s simply to keep us as far from a U.S.-like crisis as possible, and to keep banks (at least his) responsible about their lending practices – something that wasn’t done in the U.S. before their housing market was flooded with underwater mortgages and foreclosures all around the country.
In the interview Mr. Vachon said, “The banks have a fundamental and a core responsibility. What we all want to avoid in this country is a repeat of what went on in the U.S. and other places. When you look at what occurred in the U.S., it was the underwriting policies of the banks and of the mortgage insurance units that impacted things.” Simply, Mr. Vachon believes that if Canadian banks can hold off on giving mortgages to those that really can’t afford them, we’ll be in a better place than our southern neighbours were when the crisis hit; because banks down there did not take the same kind of preventative steps. But, we don’t currently only have better banking practices than those in the U.S. Mr. Vachon believes that we have more openness between the government and the banks – and that’s also going to make a difference.
Speaking towards that issue, he said, “There was no dialogue [in the U.S.] between the industry and the regulators prior to the crisis. I think in Canada there is a good dialogue. Based on the dialogue, we’ll adjust our policies accordingly.” That dialogue has certainly been seen in the last few months, with banks continually tossing the ball to Finance Minister Jim Flaherty, calling on him to make changes – and Flaherty lobbing it right back at them.
Mr. Vachon’s words should certainly be encouraging to anyone thinking our current housing market is overheated, or in a bubble state that’s soon going to burst. The simple truth is that as homebuyers can look at dream homes all they want – even ones they can’t afford. But it’s got to stop with the lenders – and they need to be the ones deciding on whether or not those buyers can actually afford that dream home – and then only give them a mortgage if the bank is confident that they can.
The National Bank of Canada is the sixth-largest bank in Canada, operating mostly out of Quebec, Ontario, and New Brunswick. And this isn’t the only time that the other major banks have made a move and National hasn’t been quick to follow. When CIBC and BMO both backed out of the mortgage broker market, National Bank remained – and are still going very, very strong within that market.
