I have come to the conclusion the philosophy behind the B20 mortgage stress test is akin to the philosophy that says the best way to get rid of a headache is to cut off the head.
Get rid of housing markets and you will get rid of potential and perceived problems caused by housing markets.
Of course, housing markets are not going away, but they are weakening all across Canada because of B20, say housing experts, ranging from the Canadian Home Builders’ Association, Mortgage Professionals Canada, various real estate companies and now, a major bank or two.
All of them have a vested interest in housing. All have called upon the Office of the Superintendent of Financial Institutions (OSFI), which introduced B20 on Jan. 1, 2018, to tweak B20.
Now voices that do not speak about housing on a regular basis are calling on OSFI to lighten up.
At the Calgary Real Estate Board’s January forecast breakfast, United Conservative Party leader Jason Kenney told the crowd, “If you elect a United Conservative government, we are going to go to bat for (those) … who are being pushed away from homeownership because of the prejudicial … unfair stress test.”
On Feb. 4, the City of Calgary council unanimously passed a Notice of Motion from Coun. George Chahal to have Mayor Naheed Nenshi write a letter to Prime Minister Justin Trudeau and Minister of Finance Bill Morneau, advocating for a B20 review. The letter will recommend B20 policy recognizes regional differences, in particular the economic and market conditions in Calgary.
A letter will also go to Premier Rachel Notley and Minister of Finance Joe Ceci to have Alberta Credit Unions and ATB Financial adopt Alberta-based mortgage approval requirements. A copy of the letter will be sent to Kenney.
In addition, the motion calls for City of Calgary representatives to present, and gain support for, regional-based mortgage financing at the 2019 meetings of the Alberta Urban Municipalities Association and Federation of Canadian Municipalities.
And there’s more.
Mortgage growth hit a 17-year low in 2018, forcing the big banks, which originally supported B20, to acknowledge it is actually a pain in the assets.
In a research note, CIBC deputy chief economist Benjamin Tal had this to say, “The damage caused by the central bank’s premature bullishness was reversed quickly (with a pause in interest hikes). What hasn’t been reversed yet is the damage to the housing market due to OSFI’s B20 rules.”
Like others, Tal is not calling for elimination of B20 nor suggesting it was a mistake. He just wants it tweaked.
“Some Canadians needed to be saved from themselves,” he says. “But given where we are in the cycle, and with policy rates up by 75 basis points since the introduction of the new measures, is 200 basis points still the right number? Not taking a position here … just asking.”
“Banks are here to make money for shareholders, and if they see something adversely affecting that goal, such as a slowdown in lending, they will definitely have an opinion,” he said.
Butler, in concert with many others, said homeowners renewing their mortgages should not be subject to the stress test.
“Applying the stress test to consumers seeking to get a better deal at the point of renewal of their mortgage is ridiculous,” he said. “If a family is prevented from shopping for the best interest rate at the point of renewal when their incumbent lender is not required to use the test, then it is an anti-consumer policy that enriches the incumbent lender and harms the consumer.”
As for OSFI, the response is tepid.
In a speech on Feb. 5, Carolyn Rogers, assistant superintendent of OSFI, said, “OSFI monitors the environment on a continual basis and when we determine that adjustments to our standards and guidelines are warranted, we make them.”
Rogers said the situation is fluid.
“Should that margin of safety be monitored, and should changes be considered if conditions in the environment change? Of course, they should,” she said.
Couched language, perhaps.
The Bank of Canada has said B20 has achieved its primary goal, which was to cool the red-hot markets of Toronto and Vancouver. Both markets have seen historic drops in sales, which should lead to price declines (the main issue).
So, conditions in the environment have changed.
Perhaps OSFI feels it cannot be seen to be caving in to associations and industries with direct ties to housing.
Perhaps OSFI feels more comfortable taking orders from the government.
It’s all well and good for industry to demand a change to B20 – it is those efforts that got the attention of the politicians.
One can also presume if politicians are getting involved, it’s because they are hearing from constituents who can’t buy a home, or worse, are on the verge of losing their homes, because of, or due in no small part to, B20.
There are two very important elections in Alberta this year, provincial and federal.
If those seeking office are not campaigning to reduce the severity of B20 and are perceived to be a headache by home buyers, homeowners and the housing industry, there is a metaphorical, and at the same time a very real, way to get rid of the headache.
Head to the polls.
from Calgary Sun http://bit.ly/2SlH9n5
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