Homes are pictured in Vancouver on April 16, 2019. The Canada Mortgage and Housing Corporation is defending the mortgage stress test amid calls for the measure to be changed. President Evan Siddall says in a letter to the Standing Committee on Finance that the new measure is working as intended to lower house prices and protect Canadians from borrowing too much money. THE CANADIAN PRESS/Jonathan Hayward

CMHC defends mortgage stress test changes amid calls for loosening rules

Uninsured borrowers must now show they could service their mortgage if rates rose two per cent

The CEO of Canada Mortgage and Housing Corporation is forcefully defending mortgage stress test rules and warning federal policy makers to hold the line amid calls for softening the measure from industry associations.

“My job is to advise you against this reckless myopia and protect our economy from potentially tragic consequences,” wrote president and CEO Evan Siddall in a letter dated Thursday to the Standing Committee on Finance.

He urged the committee to “look past the plain self-interest” of the parties lobbying for easing the changed rules and implementing other measures, like offering mortgage terms of 30 years.

The Canadian Home Builders Association (CHBA), the Mortgage Professionals Association of Canada (MPAC) and the Ontario Real Estate Association (OREA) have all called for the changes outlined by Siddall.

“I’m quite surprised to see that our community was somewhat vilified by the letter,” said Paul Taylor, president and CEO of MPAC, when he says the group was trying to provide observations about why the program might need some adjustments.

The stress test requires would-be borrowers to show they would still be able to make payments if faced with higher interest rates or less income. It first applied to insured mortgages or those with down payments of less than 20 per cent of the purchase price with a variable rate and a term of less than five years.

In Oct. 2016, Federal Finance Minister Bill Morneau extended it to five-year mortgages. The Office of the Superintendent of Financial Institutions amended the B-20 rule starting January 2018 to include uninsured mortgages or those with a down payment of more than 20 per cent.

Uninsured borrowers must now show they could service their mortgage if rates rose two per cent over the Bank of Canada’s five-year benchmark rate or the borrower’s interest rate.

MPAC wants that figure lowered to about three-quarters of a per cent, or to see lenders allowed to offer 30-year mortgage terms, said Taylor.

The group doesn’t disagree that house prices escalated too quickly or that people are indebted, said Taylor, but it believes either of those changes would increase the purchasing power of first-time home buyers who have been disproportionately sidelined by the changes.

CHBA has similar aspirations to CMHC, said CEO Kevin Lee — namely, affordable housing and avoiding excessive consumer debt.

“But we have a different view on what the impact of all the mortgage rules has been, and where we’re at right now and what the best route forward is,” he said.

CHBA wants both 30-year mortgage terms and a scaled back stress test that operates on a sliding scale — the longer the term, the smaller the stress test percentage.

He rejected CMHC’s assertion that the group is biased.

“Our position is always to push for affordability to help Canadians become homeowners,” he said, adding he believes many Canadians would look for affordability in the same way the group advocates for it.

OREA did not immediately respond to a request for comment.

READ MORE: B.C. real estate board urges feds to revisit mortgage stress test

Siddall said such measures would inflate property prices by up to one to two per cent in Canada’s large cities, as well as stimulate more borrowing.

He also took aim at two of Canada’s big banks, highlighting remarks from TD Bank economists who “argued that the stress test should be removed so that house prices can increase by $32,000”, a report Siddall described as “an astonishing piece of work”.

Last month, CIBC World Markets Inc. deputy chief economist Benjamin Tal released a report showing that the new mortgage stress tests accounted for at least half of the $25-billion decline in new mortgages started late last year. Tal argued the test was necessary, but could be made more flexible by taking into account rising interest rates, for example.

Siddall highlighted both banks’ arguments as “cases evident of moral hazard” since the insured mortgages they offer are backed by a federal government guarantee.

“I doubt they’d be as cavalier if it were their risk,” he said.

Neither TD nor CIBC immediately responded to a request for comment.

Siddall argues that “the stress test is doing what it is supposed to do.”

Changes to the stress test requirements starting in 2010 have helped keep house prices 3.4 per cent lower nationally than where they otherwise would have been, he said.

“Critics of the stress test ignore the fact that high house prices are the overwhelming reason why home ownership is out of reach.”

READ MORE: IMF urges Canada to stay course despite calls for easing mortgage stress test

Aleksandra Sagan, The Canadian Press


Like us on Facebook and follow us on Twitter.

Just Posted

No chronic wasting disease found in deer carcass brought to Nanaimo

Conservation officers had asked for public assistance to locate hunters last month

Mount Washington receives more than 30cm of snow

Last week, the resort announced they were pushing back opening day due to lack of snow.

Gabriola Island plane crash victim identified; witnesses describe ‘explosion’

He was a flight instructor, charter pilot and owned an airstrip before leaving Alberta

Canada ranks among countries most impacted by severe weather

Canada has climbed from the 42nd spot to ninth on the Climate Risk Index

Snowbirds set to take to the skies of the Comox Valley and beyond

The Royal Canadian Air Force officially announced the 2020 Snowbirds schedule

VIDEO: Andrew Scheer to resign as Conservative leader

Decision comes after weeks of Conservative infighting following the October election

Island NDP MP Gord Johns says Scheer’s resignation not surprising

Pressure is on NDP leader Jagmeet Singh, as the lone major party leader remaining in the opposition

RCMP take care when burying sex mannequins found this year in Manning Park

Police tasked with ensuring the mannequins were completely disposed

B.C. seniors need better vaccine protection, advocate says

Home support down, day programs up in annual rating

RCMP rescue wounded raven on Vancouver Island highway

Bird expected to make full recovery

UPDATE: VIU student died in crash on Nanaimo Lakes Road

Passenger in BMW dies, driver seriously injured in accident Wednesday afternoon

Process to identify those killed in Gabriola plane crash could take days

Canadian flight museum suggests Alex Bahlsen of Mill Bay died in Tuesday’s crash

Be aware of ticks when chopping down Christmas trees

Potential for ticks to transfer to clothing

Oak Bay’s dwindling population is rapidly aging

Housing Needs Study says Oak Bay facing a shortfall of 349 bedrooms

Most Read