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

PODCAST: Political Scientist Marc Froese discusses the results of the Federal Election

Western alienation, results, minority governments and more highlight this week’s The Expert podcast

Blaine Calkins takes the seat for Red-Deer Lacombe

With 50 per cent of the riding counted, Calkins has over 21,000 votes

Trudeau has won the most seats — but not a majority. What happens next?

Trudeau will have to deal with some of the implications of Monday’s result

LIVE MAP: Results in Canada’s 2019 federal election

Polls are now closed across the country

Red Deer-Lacombe candidate “thrilled” voters loved People’s Party of Canada platform

Laura-Lynn Thompson attended a results party at Sylvan Lake Golf and Country Club on Oct. 21

WATCH: 6th Bill’s Trail Run welcomes over 450 runners

Run advocates for the use and upkeep of Lacombe’s trails

People’s Party of Canada’s anti-immigration views ‘didn’t resonate’ with voters: prof

Party was formed on anti-immigration, climate denying views in 2018

Husky Energy lays off staff to align with lower spending plans and strategy

Company had 5,157 permanent employees at end of 2018, according to regulatory filing

‘Issue-by-issue parliament’: Expert says Liberals need to placate NDP to be effective

Scandals, social issues, racism defined 2019 federal election, SFU prof says

‘Wexit’ talk percolates day after Liberals returned to power with minority

An online petition is calling for a western alliance and Alberta to separate

Opposition to Trans Mountain won’t change, B.C. minister says

Pipeline projects proceed under minority Trudeau government

Alleged RCMP secret leaker must stay with B.C. parents while on bail

Cameron Ortis, 47, is charged with violating the Security of Information Act

‘Inconsistent’ message on climate change hurt Liberals at the polls: prof

Trudeau government will have to make concessions to hold onto power

VIDEO: Final trailer for ‘Rise of Skywalker’ debuts

Last instalment in Skywalker saga to hit theatres Dec. 20

Most Read